Neobank Chime debuts $500 instant loans for direct depositors

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Neobank Chime will now offer what it calls "Instant Loans" — three-month installment loans of up to $500 at a fixed interest rate and without a credit check for members. 

The fintech, which champions early paycheck access, will use its proprietary method to discern eligibility, relying on several factors aside from credit history to decide whether or not to lend. According to Chime, on-time loan repayments will help customers build a credit history. 

Only Chime members who directly deposit their paychecks into their Chime accounts will be eligible for the new product. Chime members are notified via the Chime app if they qualify. If accepted, customers are given instant access to the funds. 

The new Instant Loan program comes with no late fees or compound interest, the company said. The loans have a fixed interest rate of $5 for every $100 borrowed and are to be paid back in three monthly payments of $35 for every $100 borrowed, which is equivalent to a 29.76% annual percentage rate. Chime customers can enroll in automated payments; the neobank says the loans are designed to not exceed 10% of a customer's monthly cash inflows. On-time repayments are reported to credit reporting agencies, letting users build credit.

"We are relentlessly focused on helping everyday people achieve financial progress," said Madhu Muthukumar, Chime's chief product officer. "Our members have told us that they want simple and transparent tools to access money when they need it, and to help them build credit — and we're excited Instant Loans provides both to our members."

Chime has 38 million customers, according to research from Cornerstone Advisors, making its customer base larger than that of U.S. Bancorp and PNC combined. The report found Chime has more primary customers than JPMorgan Chase with about half of the neobank's customers considering it to be their primary checking account provider. Chime itself is not a bank and does not have a banking license. Banking services for the fintech are done through Bancorp Bank and Stride Bank.

There have been reports that Chime is exploring going public with an IPO this year. In 2024, Chime announced it had covered more than $30 billion in transactions.

Aaron McPherson, principal at AFM Consulting, said the new loan product is interesting because it is "a bit of a hybrid of payday lending and buy now/pay later" offerings.

"It is playing in the buy now/pay later space without being linked to a specific purchase," McPherson said. "The payment terms are similar to pay-in-four, except in this case it is three monthly payments, and the interest rate is comparable. Also interesting is the lack of a credit check, which suggests it is playing in the same space as payday loans, which are likewise based on past monthly earnings, and which Chime already provides through MyPay."

McPherson said he does not see the Instant Loan product displacing buy now/pay later offerings because Chime members can only have one loan out at a time, meaning there's room for customers spread thin to still take advantage of buy now/pay later options.

"I do wonder how regulators will perceive it, because I could see someone getting on the treadmill with this and not getting off, because they are always $500 behind," McPherson said. "In that way, it is also a bit like revolving credit. There may be some attempt to limit the APR, although it seems comparable to credit card rates. Still, this seems like a valuable addition to the consumer credit arsenal, and I expect other banks to try to attempt something similar."

Chime was originally launched in 2012 with a mission of offering alternative banking products with a focus on reducing or eliminating bank fees and later expanded to help customers grow their credit. The model has proven to be popular, especially among younger Americans and those living paycheck to paycheck. 

Customers who directly deposit their paychecks into Chime receive access to their funds up to two days early. The company's other products include SpotMe, which lets members overdraft up to $200 without incurring fees; MyPay, which lets customers access up to $500 of their paychecks before payday with no interest or credit check; and the Credit Builder card, a secured credit card with no initial fee.