Should You Get a Short-Term Loan from the Dave App?

Turns out, that cartoon bear is charging CRAZY interest rates

Andy Spears


Photo by Rami Al-zayat on Unsplash

Should you get a loan from a cartoon bear on your phone?

This is a question I asked back in January. The answer then was to proceed with extreme caution.

Some Dude Who Hasn’t Shaved in Two Days Wants to Give You a Loan on Your Phone | by Andy Spears | Medium

A new story from the L.A. Times digs deeper, explaining just how bad the fees associated with friendly, cartoon bear apps can be.

Here’s how the Times broke down the fees associated with a loan from Dave:

Given that the money had to be repaid in 12 days, the $5.99 fee and $2 tip, if considered as interest, cost Goad 122% on an annual percentage rate basis — a metric that helps compare the relative cost of loans. If he tipped $6.93, the company’s average in the first quarter, it would amount to an APR of nearly 200%. If he chose a 15% tip, the total cost would rise to $35.99 with an APR of 547% — corner payday loan territory.

Consumer advocates suggest the Dave app may be technically better than a payday loan, but not by much:

“Traditional payday loans and traditional overdraft fees are so awful that it’s not hard to be a little cheaper and a little better — and some of these [apps] may be,” says Lauren Saunders, associate director of the National Consumer Law Center. “But are they promoting people’s financial health? That is much more debatable.”

While tip-based apps that offer non-traditional small-dollar loans may be popular, they do come with fees. And while Dave founder Jason Wilk says they were meant to “kill” overdraft fees at the bank, many banks are now moving away from overdraft fees anyway.

Truist Joins Banking’s Movement Away from Overdraft Fees | by Andy Spears | Medium

Moreover, another fintech lender, Solo Funds, also uses a tip-based model similar to Dave. The result? Fees that create effective interest rates in excess of 4000%!



Andy Spears

Writer and policy advocate living in Nashville, TN —Public Policy Ph.D. — writes on education policy, consumer affairs, and more . . .