How to choose the best cash advance app when you’re out of options

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If you are one of 56% of Americans live paycheck to paychecksometimes you may need to find extra money to tide you over until payday. More and more, people are turning 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 cycle of debt, so it’s best to use them sparingly.

How do payday advance apps work?

Also known as “access to earned wages” or “pay on demand”, these apps allow you to access wages you’ve already earned before payday. Advances are usually small amounts – typically up to $250 – and there are no transaction fees or interest charges. Apps fall into two categories: an employer-provided service integrated with your company’s payroll (like DailyPay, PayActiv, and Rain), or a separate public app where you enter banking information yourself (some of the more popular include To earn, David, Brigitte, Carillonand SilverLion—Money Under 30 has a good overview of the best of them here).

There’s a little legal loophole at play here: given that these apps don’t charge interest and the money is already technically yours (because you’ve earned it and are just waiting for it to reach your account banking), it is not taken into account. a loan, allowing cash advance companies to avoid the regulatory hurdles you would see with payday loans. Afterwards, 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 tips are not mandatory, they are “suggested” (“[A] a bigger tip helps pay for users who can’t afford to tip at all,” implores Earnin, according to Nerdwallet). Besides, according to the New York Timesby choosing do not tipping may reduce the amount of advance you will be entitled to the 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 consider 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 the apps advance from funds are added to what one feels. much like interest.

In a example reported by NBC News, a former Earnin user paid a $5 tip for a $100 advance – an APR of 130%, which is well above the average interest rate of 16.15% that you may 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 thing at the end of the day.

Plus, because these apps automatically tap into your checking account (once payday rolls around), you risk being hit with overdraft fees that can keep you stuck in an endless cycle of debt payments. As Time reportsDave’s app terms of service state: “Dave monitors your balance and will attempt to ensure that you have sufficient funds before debiting 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 pricing structure of these apps and avoiding getting hit with unnecessary charges when you can (i.e. a subscription might be worth the extra cost if additional services are offered, but otherwise don’t pay for it if you don’t need it). In any case, avoid any cash advance app that charges interest or upfront fees. To learn more about choosing the right app, 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, nor should you think of them as a replacement for your emergency fund, but they can be a handy option if you’re low on cash and are in a hurry. But before you use one, think about your other options: many credit unions and banks offer small loans that can be paid off in affordable monthly installments, or you can see if any of your credit cards offer a 0% APR offer; either would give you more time to catch up on the refund.

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