FinTech News
Varo Bank Introduces Line of Credit Option with Fixed Pricing
Varo has announced the impending launch of a new borrowing option for customers.
About the feature:
This week, Varo Bank revealed its new Varo Line of Credit. With this feature, customers can get approval for a line of credit ranging from $600 to $2,000. According to the bank, this feature will have transparent fixed pricing rather than charging interest. It will also be free of any late fees.
As for how customers will gain approval for a Line of Credit, Varo says it will use proprietary underwriting technology and will also base its decision on a user’s banking history with Varo. This includes deposit frequency, on-time payments for Varo Advance, and more.
Despite being billed as a “line of credit,” Varo’s upcoming feature bears resemblance to a personal loan as well. An FAQ for the product states that customers will repay funds over the course of three to 12 months depending on the amount borrowed and will pay a one-time fee. Then, funds will be deposited into a user’s Varo account. Once approved for a Line of Credit, users won’t need to reapply. However, customers will need to fully repay previous draws before requesting a new one.
Varo Line of Credit is expected to launch this summer while a waitlist for the product is now open.
What they’re saying:
Commenting on the upcoming Line of Credit product, Varo Bank CEO Colin Walsh stated, “Varo Bank is continuing to demonstrate its commitment to helping the majority of Americans who are feeling increased fiscal pressure combat money-related stress and improve their financial lives. Varo Line of Credit is a first-of-its-kind lending product that will help people borrow at a transparent cost when life happens and they need extra cash.”
My thoughts:
On the surface, the Varo Line of Credit might sound like a good alternative to traditional credit cards or loans. Unfortunately, as Axios points out, this flat fee could work out to be a much higher APR than credit cards. For example, they note that a $2,000 one-year loan using this feature comes with a fee of $400 — which works out to a 34.6% APR if you were to calculate it in regular loan terms (whereas most would assume it’s a 20% APR since $400 is 20% of $2,000).
Setting that aside, I’m a little confused about how this Varo Line of Credit is different from the bank’s Varo Advance feature aside from the amount accessible. I suppose that’s exactly the difference, but Varo has already expanded that program, so it seems as though they could just continue that theme. Varo Super Advance, perhaps?
Overall, while I don’t think this is a great deal, I can see how it could appeal to people in a time of need. After all, even if it does end up costing a bit more, the predictability of the payment may be attractive. Of course, I’ll also need to see more details when the feature actually launches.
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