December 15, 2011

Is Dwolla Instant a 19% APR Credit Line?

Is Dwolla Instant a 19% APR credit line?

Dwolla payments network enables making payments online for a low fee or no fee. With its low costs, it is a great alternative to Paypal, credit cards, Square and others for making payments online. Dwolla keeps its fees low by transferring cash directly between bank accounts similar to ACH; this also means a few days wait for the payment to clear, a friction point in many payment transactions.

Dwolla Instant is a new opt-in feature that allows instant payments, making Dwolla more like a credit card.

Dwolla provides a $500 credit line that you can use to make payments instantly – a convenience that many users will appreciate. However, it comes with fees – a $3/month fee for using the feature and a $5/month fee if you do not payoff your Dwolla account at the end of the month. $8 fees on a $500 balance is 1.6% fees per month, equivalent to a 19.2% APR.

You can choose not to use Dwolla Instant and continue paying from your bank account; in this case there are no additional fees other than the normal low transaction fees.

Or, if you do use Dwolla Instant, you can pay it off in full (like any credit line) each month and only incur the $3/month fee, equivalent to a 7.2% APR (on a $500 credit line).

With its low fees, Dwolla as-is is great for many transactions (if you can tolerate the small delay in receiving the payments). Dwolla Instant provides an additional convenience in making payments online.

Silicon Prairie has more details of Dwolla Instant.

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