Internet Start-Ups Take on Payday Loan Market
More Internet start-ups are entering the payday loan market, offering lending alternatives to consumers with little or no credit.
LendUp.com, a San Francisco-based company funded by a group of venture capital angels and firms, starts operations today making small-dollar loans of up to $250 for a period of one week to one month to people with bad credit. The company wants to use these loans to eventually help consumers build their credit score.
LendUp’s lending fee for a one-week loan is 15 percent of the loan amount, so it will cost $37.50 for a $250 loan. That is the equivalent of a 773.8 percent APR. If you want that same $250 loan for thirty days, it will cost you 17.6 percent interest or $44, equal to a 214.13 percent APR.
Borrowers can earn a small discount for paying early or by taking online credit courses. Those that pay on time can graduate to loans that will count on credit reports and improve credit history. Borrowers apply online and if approved, the money is deposited directly into your checking account, minus the fees.
Many payday lenders charge up to $17.50 for every $100 borrowed, usually up to a maximum of $300. According to Consumer Union, that is an interest rate of 911% for a one-week loan; 456% for a two-week loan, and 212% for a one-month loan.