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

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If you are one of the 56% of Americans who live paycheck to paycheck, sometimes you will need to get some extra cash to keep you going until payday. More and more, people are turning to cash advance apps to cover their bills. Generally, you can get a few hundred dollars for a small fee without worrying about interest charges (unlike predatory payday loan stores). While useful in a pinch, these apps have 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 Salary Access” or “Pay On Demand”, 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 charges. 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 enter banking information yourself ( some of the most popular include To win, Dave, Brigitte, 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: given that these apps don’t charge interest and the money is already technically yours (because you earned it and you’re just waiting for it to arrive on your bank account), this does not count as 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 by asking for voluntary “tips” on an advance (up to 20% of the total).

Although tips are not mandatory, they are “suggested” (“[A] A larger tip helps pay users who cannot afford to tip at all, ”implored Earnin, according to Nerdwallet). What’s more, by the New York Times, by choosing not Tip may reduce the amount of the advance you will be entitled to 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 cash advance apps do come down. add to what one feels. a little 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 far more than 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 usury charges, interest rates, or fees is just semantics. It’s the same at the end of the day.

Plus, since these apps automatically dip into your checking account (after payday is over), you risk being hit with overdraft fees that can keep you stuck in a never-ending cycle of paying debts. As time reports, the Dave app’s terms of use read: “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 when 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, 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. an annual interest rate offer of 0%; either would give you more time to catch up with the repayment delay.

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