I haven’t read every comment in this thread, so this may have already been pointed out.
One thing to keep in mind is that because of the way these Square loans are structured, if you get a new square loan offer before your previous loan is paid off, you are actually incurring the origination fee on the same money twice.
For example:
You take out a $100K square loan and the origination fee is $15k, meaning you pay back a total of $115k.
In the past, let’s say you have paid back $80K of that loan and then you receive a new offer for $100K.
When you accept the new loan offer, as others have pointed out, you actually only receive a net amount of $65k because $35k of the new loan amount goes towards paying off your previous loan balance.
But, in addition to this, you are also paying another $15k origination fee…. Which means you are actually paying the origination fee on $35k balance again.
You paid it once for the first loan, and again for the second loan that was used to pay off the balance on the first loan.
I think this might be causing some regulatory issues with federal lending laws.
This might be why Square is now requiring the current loan to be completely paid off before a new offer is extended for many users.
Thats just a guess, but it could explain the new format.
Even if this isn’t the reason for the new format… it is something that everyone needs to consider when calculating the actual cost of a square loans.
In this hypothetical scenario, you aren’t paying 15% to borrow that money…. You are actually paying 30% origination fee on that $20k original loan balance and you are also paying another 15% origination fee on the original $15k origination fee.
