By: Anonymous Payday Loan Insider. Installment Loan versus a Payday Loan and Think Finance’s “RISE” small dollar loan product.
If it looks like a duck, walks like a duck and swims like a duck, it’s probably a duck. And so it goes for payday loans and installment loans. With a payday loan, a borrower receives $300 in return for paying $360 to $390 on their following payday. Depending on the number of actual days outstanding, the APR is the interest payable on an amount borrowed plus other fees expressed as an annual percentage rate of charge. Payday loan APR’s typically range from 390% to 580%+. (Let’s not even start on rollovers!)
“Think Finance” has something they call a “RISE” product. It’s an installment loan. Meaning the loan is amortized: it’s payed down in equal amounts over 6 to 18 months. They offer these loans as “low as 71% APR’s. Sounds great, right? A small dollar loan to be paid back over a longer period of time. Good for the consumer…
First time RISE customers typically qualify for an installment loan of $100 to $1,000 (though higher amounts may be available in certain states). The APR range for loans with bi-weekly payments is 358.85% to 299.16%. For example, a $700 loan in Idaho repaid in 14 bi-weekly payments of $109.18 (last payment amount varies), including $828.59 of interest, has an APR of 329.07%.
Let’s dig in to “RISE.”
A $300 payday loan in South Dakota for 14 days runs $60 in fees + the $300 loan principal. That’s an APR of 521%.
Using RISE’s product, you must borrow more money to qualify for their lower interest. Again using South Dakota, if a consumer wants to borrow the typical payday loan amount of $300 they would be required to make 13 payments of $50.89 bi-weekly. That adds up to an APR of 358% and a total payment of $661. To receive RISE’s lowest advertised rate of 71% a consumer would have to borrow $5,000 paid back over 11-months. That’s a total payback of $9,300.
I suspect RISE will be profitable. After all, they’re funded by some pretty smart Silicon Valley guys including venture capital firms Sequoia Capital, Startup Capital Ventures, and Technology Crossover Ventures.