Payments company Square is testing a new small-dollar loan product through its peer-to-peer Cash App. A thousand users will test the product. Users can borrow $20 to $200, and have four weeks to pay the loan back. They are charged a 5% fee, and if they don’t pay back after a one-week grace period following the deadline, they will be charged an additional 1.25% in non-compounding interest each week.

Why should we care?
Square is tapping into a consumer need for additional liquidity during the financial crisis. It’s the same reason earned wage access platforms like PayActiv (which, by the way, just scored an additional $100M in Series C funding) are thriving. A small number of banks, including U.S. Bank, also offer small-dollar loans to help consumers meet short-term money challenges. Square’s 5% fee, multiplied over a year, amounts to a 60% APR, but it’s still significantly lower than most payday loans. Consumers also can’t take out additional loans if they default. The small-dollar loan offering comes as Square builds Cash App’s product suite, including a debit card, rewards, and investments.