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Paycheck advance apps let users borrow a small amount of their expected earnings and repay it on their next payday.
It seems like an attractive offer if you need extra cash between paychecks, but consumer advocates say cash advance apps can lead to a cycle of debt.
Before you borrow, compare the pros and cons of an advance from an app.
Summary: Pros and cons of paycheck advance apps
Paycheck advance app pros
The benefits of cash advance apps are mostly short-term — they provide fast, easy cash.
No credit check
Cash advance apps don’t do a soft or hard credit check, which means no impact to your credit score. Instead, they scan your bank account transactions for information like when you get paid and how much, the amount you have left between paychecks and how often the account goes negative. Reviewing your bank account helps an app decide your advance amount and when to collect repayment.
Many apps will send money in a few hours or less for a fee. The expedited funding fee is usually tied to the advance amount: larger advances have higher fees.
Few mandatory fees
Most cash advance app fees are optional. Some charge a mandatory subscription fee, but most apps only request optional tips and charge a fee to get your funds quickly, which you can decline if you don’t need the funds immediately.
Nonpayment is unlikely to lead to collections
With a few exceptions, paycheck advance apps don’t report payments to the three major credit bureaus or send borrowers to collections for not repaying an advance. The most common consequence for nonpayment is that you can’t get another advance until you repay the previous one.
Paycheck advance app cons
There’s a strong case against using cash advance apps. Consumer advocates say they aren’t designed to work in the consumer’s best interest — they can be expensive, fees can be difficult to assess and what you see may not be what you get.
Can create a habit of reborrowing
Potentially the biggest drawback of cash advance apps is that they make it easy for users to rely on the quick influx of cash to cover regular expenses. Frequently borrowing from a paycheck advance app can lead to a debt cycle that’s similar to the one often associated with payday loans.
A 2021 study from the Financial Health Network found that nearly 70% of app users borrowed multiple advances consecutively — behavior that’s consistent with payday loan borrowing.
Maximum advance amount may not be available at first
Many apps advertise advances “up to $250” or “up to $500,” but users may not get the maximum available amount the first time they borrow. Typically, apps initially lend small amounts and increase users’ limits as they borrow and repay on time. This can be frustrating if you expect to download an app and immediately receive a large instant advance.
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High fees for fast funding
The cost of expedited funding varies widely across apps. Some charge a maximum fee of $3.99, while others charge as much as $20 to get $200 instantly. A $200 advance with a $20 fee repaid in seven days would equate to a loan with an annual percentage rate of 521% — higher than the average payday loan. Apps have increased the expedited funding fees in recent years.
Optional tips add up
Most cash advance apps request an optional tip, and this request often comes before you get the money. Consumer advocates say asking users to decide how much to pay for an advance doesn’t give them a chance to compare the cost of an advance to other types of borrowing, like credit cards or personal loans.
It may not seem like a big deal to send the app an extra dollar or two for the service, but there’s no benefit to adding a tip. Most apps’ terms and conditions say the optional tip has no impact on your ability to get an advance. NerdWallet recommends not tipping a paycheck advance app.
Repayment may lead to an overdraft
Most paycheck advance apps withdraw repayment on your next payday, which they determine by looking at deposit patterns in your bank account. If the app incorrectly estimates your payday or you don’t have enough money in the account on the due date, you risk overdrawing. If your bank charges overdraft fees, this could trigger one.
Fast-cash options to consider instead of an app
You may have less expensive fast-cash options than borrowing from an app. Here are a few to consider.
Sell items: Some resale shops provide same-day cash for used clothing, you can sell a used iPhone at an ecoATM, and the site CardCash buys gift cards for up to 92% of their value. You can also sell items on Facebook Marketplace.
Sell to or borrow from a pawn shop: Pawnshop staff will evaluate and pay for items on the spot. If you don’t want to sell an item, a pawnshop loan can be a quick option. Fees may be high and you risk losing the item if you don’t repay.
Consider a side gig: Some side jobs can get you cash as quickly — or even faster than — cash advance apps. Online freelance work, user tests and surveys may pay you within a day or less. In-person work such as dog walking and tutoring may take longer.
Borrow from a friend or family member: Though it may be difficult to ask, a loan from someone you trust may be enough to help you bridge an income gap or cover an urgent expense without a credit check or high fees. It may help to draw up a family loan contract that includes a repayment schedule and any interest.