Need an influx of cash and can’t wait for your paycheck to land in your account? It happens. Two options are cash advance apps and payday loans. You can typically get bigger loan amounts with payday loans, but it’ll cost you. Cash advance apps are much cheaper, but you’ll still likely pay a fee if you need the money right away.
A cash advance app is an app that allows users to access a portion of their earned wages before their regular payday, often with low or no fees.
Once you have the app, enter basic details and link your bank account. After the provider verifies your information and deems you eligible (not a given), you can request an advance and have the money almost instantly.
In most cases, cash advances require an active checking account and direct deposit for paychecks. If you don’t have direct deposit, many cash advance apps won’t give you a loan. A few cash advance apps, like Cleo, Vola and Dave, allow cash advances without direct deposit. But you’ll need to meet other requirements.
Borrowing limits vary by lender, but most max out at around $200 to $250 — although some offer higher limits of up to $500 or even $750. You may have to pay expedited transaction fees, a monthly subscription or membership fees that can range from $1 to $9 or more.
A cash advance app typically doesn’t charge interest or late fees. However, if you can’t afford to wait a few days for the funds to transfer for free, you’ll have to pay an instant transfer fee — which varies by app and loan amount.
And though the fees are usually minimal, they can add up quickly if taking cash advances becomes a habit. So between the cash advance, faster transfer fees and any subscription fees these “free” loans can add up and potentially lead to a cycle of debt. However, there are some cash advance apps that have fewer fees or don’t charge subscription fees.
A payday loan is another way to get an advance on your paycheck, but the costs are significantly higher than with cash advance apps. For example, payday loan lenders typically charge both interest and late fees. But they also don’t require credit checks and loan amounts can be higher than with cash advance apps — up to $1,000 in some cases.
Payday lenders calculate interest by charging a flat fee per $100 borrowed. According to the Consumer Financial Protection Bureau (CFPB), lenders may charge between $10 to $30 per $100, with $15 being a fairly common rate. That may not seem like a lot, but that equates to nearly a whopping 400% APR for a two-week loan.
Loan proceeds are typically deposited directly into your checking account, but depending on the lender and your circumstances, you may receive the funds in cash, by check or loaded onto a prepaid debit card. The loan is typically repaid in full on your next payday by having it automatically deducted from your bank account, although some lenders may allow you to pay in a few installments.
The primary risks of payday loans are paying predatory interest charges, and the potential for having to extend the loan if you can’t repay it on time. If you have to rollover, or renew the loan, you’ll typically be charged additional fees on top of the original charges, which puts you deeper in debt.
Because of this, there is a very high risk of borrowers getting caught up in a debt cycle that can be difficult to overcome. In a study done by the CFPB, findings revealed that 80% of payday loans are rolled over or renewed within two weeks, and more than 60% of loans are extended to borrowers in the course of at least seven loans in a row.
Cash advance apps and payday loans serve very similar functions, but there are some key differences.
If you’re in a bind and only need a small loan, a cash advance app is the better way to go. Yes, you may have to pay a fee to get the money instantly, and some apps have monthly subscription fees, but they are cheaper than rates charged by traditional payday lenders.
On the other hand, if your cash advance app only approves a loan for $100 and you need $200, you may need to seek out a payday lender instead. But be prepared for high fees. Either way, neither option should be considered a long-term lending solution.
It’s best to try and avoid the potential debt cycle that either option can promote, adds Philip Parker, founder of CardPaymentOptions.com.
“It’s important to consider the potential for dependency on these financial instruments, which can lead to a cycle of debt if not managed properly. Both options should be used cautiously as stop-gap arrangements rather than long-term financial solutions. Users should also be aware of the privacy implications of linking bank accounts to third-party apps.”
Compare these cash advance apps, paying special attention to membership fees and expedited transfer costs.
Cash advance apps may only approve very small loan amounts — especially for newer users — and payday loans are so expensive that it’s worth exploring other options.
Payday loans and cash advance apps are two popular options to obtain a small loan between pay periods. Cash advance apps basically came about as a less expensive answer to predatory lending and are fast and convenient, if not totally “free.”
You still usually have to pay a charge to get the money instantly, and some may also require a monthly membership fee. But sometimes, the loan amounts are so low that, in an emergency, you might have to go with a traditional payday loan or alternative.
Most cash advance apps have direct deposit requirements to borrow money. But there are a few apps, like Cleo and Vola, that advance money to users who don’t use direct deposit as long as they meet other requirements.
Many apps offer savings accounts, budgeting tools, overdraft protection and credit-building opportunities, to name a few.
In general, military members can’t get payday loans because the typical interest rates charged violate the Military Lending Act, which caps interest rates on some consumer loans to military members at 36%. In most cases, payday lenders charge much more than that. Military members who meet the qualifications for cash advance apps, however, can get short-term loans that way.
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Varo Advance is a short-term solution to stretch your paycheck — fees start at $0.
Have up to $250 automatically deposited into your account — for a $9.99 membership fee.