January 19, 2012

ZestCash Loans, Better Than Payday Loans at 365 percent APR

ZestCash loans, better than payday loans at 365 percent APR.

ZestCash is an online lender that provides small loans for a few weeks, at very high interest rates. It targets people who are in dire need for cash and cannot get cash through other sources. The borrower applies online and selects their amount (up to $800) and payback period (up to 8 months). Often they get instant approval and cash (borrower is required to have a checking account and a source of income).

A typical ZestCash transaction is borrow $500 for 6 months.

The payments for this $500 loan are $41 per week for 26 weeks. It would return $1,066 to ZestCash  ($41/week * 26 weeks).

ZestCash gets a 113.2% ROI in 6-months.

The actual ROI is even higher. ZestCash adds an origination fee ($30 per $100 borrowed) and per their calculations, the payback will be $1,072.5, delivering a 114.5% ROI in 6 months.

Not bad. For ZestCash. No wonder ZestCash investors are jumping in to invest in ZestCash.

The borrower pain does not figure here - they would have borrowed the $500 at a 229% APR. Presumably under financial stress, they would have added to their misery by borrowing at such exorbitant interest rates. Compare these rates to today’s Fed Fund rates of close to zero.

ZestCash claims that high rates are necessary to meet their costs, some borrowers will default etc.

ZestCash also takes pains to stress that they are not a payday loan site – ZestCash does not require payback in 2 weeks (like payday loans do) and their interest rates are better than payday loan. Both statements are correct but still ZestCash will add to the pain of financially stressed borrowers.

ZestCash does serve a need in the market but at enormous cost to financially troubled borrowers.

Is ZestCash’s business model – prey on the weak?

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