How to choose the best cash advance app when you’re out of options
If you are one of the 56% of Americans who live between paycheck and paycheck, sometimes you may need to find extra money to help you until payday. More and more, people turn to cash advance apps to cover their bills – usually you can get a few hundred dollars for a small fee without worrying about interest charges (unlike predatory payday loan shops). While useful in a pinch, these apps come with hidden costs that can also perpetuate a debt cycle and are therefore best used sparingly.
How do paycheck advance applications work?
Also known as “Earned Payroll Access” or “On-Demand Payroll”, these apps allow you to access wages you have already earned before payday. Advances are generally small amounts – typically up to $ 250 – and there are no transaction fees or interest. The apps fall into two categories: an employer-provided service integrated with your company’s payroll (like DailyPay, PayActiv, and Rain), or as a separate public app where you plug in banking information yourself ( some of the most popular include Earnin, Dave, Brigit, Carillon, and Silver Lion—Money Under 30 has a good look at the best of them here).
There is a small legal loophole at play here: since these apps don’t charge interest and the money is technically yours already (because you earned it and you’re just waiting for it to reach your bank account. ), this is ignored. a loan, allowing cash advance companies to avoid the regulatory hurdles you would see with payday loans. Subsequently, they earn money by charging a subscription fee ($ 1-10 per month) or asking for voluntary “tips” on an advance (up to 20% of the total).
Although the tips are not mandatory, they are “suggested” (“[A] a larger tip helps pay users who cannot afford to tip, ”implored Earnin, according to Nerdwallet). In addition, by the New York Times, by choosing do not Tip may reduce the amount of the advance you will be eligible for next time.
The downside of cash advance apps
Even though this type of cash advance is not legally considered a loan, it is hard not to see them as such. Of course, using one of these apps is a better option than paying triple-digit interest rates on a payday loan, but the subscription fees and tips associated with cash advance apps do come down. add to what you are feeling. a lot like interest.
In a example reported by NBC News, a former user of Earnin paid a tip of $ 5 for an advance of $ 100, or an APR of 130%, which is well above the average interest rate of 16.15% that you could be charged to your credit card. As Missouri State Senator Jill Schupp told NBC News:
“Using the word ‘tip’ instead of a usury charge, interest rate or commission is just semantics. It’s the same at the end of the day.
Plus, since these apps automatically tap into your checking account (once payday arrives), you risk being hit with overdraft fees which can keep you stuck in a never-ending cycle of debt payments. As time reports, the app’s Terms of Service Dave states, “Dave is monitoring your balance and will try to make sure you have sufficient funds before you debit your account, but Dave does not guarantee that an overdraft will not occur. “
How to choose the best cash advance app
Half the battle is knowing the fee structure for these apps and avoiding being hit with unnecessary fees where you can (i.e. a subscription may be worth the extra cost if any services extra are offered, but if not, don’t pay for it. if you don’t need it). Either way, avoid any cash advance app that charges interest or upfront fees. To learn more about choosing the right application, check out these tips from the Better Business Bureau.
At the end of the line
Cash advance apps shouldn’t be used all the time, and you shouldn’t think of them as a replacement for your emergency fund, but they can be a handy option if you’re strapped for cash and hurry. But before you use one, consider your other options: Many credit unions and banks offer small dollar loans that can be paid off in affordable monthly installments, or you can see if any of your credit cards offer a loan. 0% APR offer; or give you more time to make up for the refund.