When you live paycheck to paycheck, an unexpected expense can seriously disrupt plans. Cash advance apps are a short-term solution to such financial glitches.
A Bankrate survey found that more than half of respondents would not be able to cover a surprise $1,000 expense. Without an emergency fund to fall back on, problems like a failed transmission or a burst pipe could sabotage budget plans and cause financial strain.
A common way to cover expenses until your next paycheck is to borrow money that you’ll pay back with a future paycheck. Payday loans and cash advance apps allow you to borrow money before the next payday. With a payday loan, lenders charge high annual percentage rates (APRs) to borrow money. These high fees can lead to more long-term financial problems as they can lead to higher levels of debt.
Cash advance apps are a more recent development that also offer quick cash before your next paycheck, but tend to charge much lower fees than payday lenders, or none at all. The app makers earn money with voluntary “tip” payments or membership fees and not with interest. The lower costs combined with stagnant wages and financial difficulties caused by the corona pandemic may be the reason why prepayment apps are becoming increasingly popular.
1. Earnin – Best for hourly workers
When users sign up for the app, Earnin connects their bank accounts to verify their payment plans. The app calculates users’ hours by tracking how long they are at work using their phone’s GPS or by allowing them to submit a timesheet. It then determines the hourly pay rate based on how much money the user receives as a direct deposit.
Earnin allows you to withdraw wages that have not yet been paid by employers. When the next paycheck hits your bank account, Earnin will automatically debit your account for the amount borrowed.
Initially, users can only withdraw up to $100 per payment period. The maximum amount that can be withdrawn is $500, but only after users keep records of app usage and payback.
The service is free of charge. Earnin makes money from voluntary tips from its users.
- Cost: voluntary tips
- Maximum Advance: $100 to $500
2. Dave – Best for overdraft protection
When overdraft fees weigh on your budget, David can help. Dave’s app looks for potential overdrafts, such as: B. an upcoming bill, and warns users before their accounts are overdrawn. The app also provides an overview of your expenses, a personalized budget that takes into account income and past expenses to estimate how much users are free to spend.
If you don’t have funds for an upcoming expense, Dave can provide a small advance. It determines the maximum advance amount based on how much you can repay on the next payday. Users are expected to repay the interest-free advance once their next paycheck is deposited.
Additionally, Dave can guide users to find a part-time job in the gig economy. A side job is a job taken on top of a main job and there may be more flexible hours and pay. It can help eliminate the need to take out a short-term loan in the first place by providing extra income between paychecks.
Dave membership costs $1 per month, but there is an option to send a tip to users who want to show more support for the service. Dave also has a spending account that users can sign up for, which comes with a feature that allows paychecks to be deposited into your account up to two days earlier.
- Cost: $1 per month plus optional tips
- Maximum advance: $250
3. Brigit – Best qualities
Bridget is another app that helps with budget management and offers cash advances to stretch funds between paychecks.
To get an advance, Brigit needs to connect to a user’s checking account that has at least 60 days of active history. In addition, the checking account must have a positive balance and have at least three direct payroll deposits. Reviews of your bank account and spending history are factored into a Brigit score, which the app uses to determine if you qualify for instant cash. Users can qualify for up to $250 in cash advances. Brigit then sets a due date for repaying the loan.
Users who qualify for instant cash through Brigit also have the option to enable an automatic transfer feature that sends an advance to the user’s bank account when an overdraft is imminent. Plus, like the Dave app, Brigit can help you find a side job for extra income when you need it.
Basic membership at Brigit is free but does not include access to cash advances. This service requires an upgrade to Brigit Plus for $9.99 per month, which includes several other features designed to improve users’ financial health, including a credit builder, identity theft protection, and repayment extensions that allow users to postpone their due dates.
- Cost: $9.99 per month to access the cash advance feature
- Maximum advance: $250
4. Current – Best for spending
electricity is a checking account available only through a mobile app. The app’s goal is to help consumers spend less money on fees and find ways to budget more effectively.
Current offers a free version of its account, but to access most features, including overdraft coverage, you’ll need to pay $4.99 a month for a premium account. With a premium account, direct deposits are delivered to your account up to two days earlier, and overdrafts are covered with no fee — up to $25 in overdrafts for new account holders, with the ability to increase this limit to $200 over time. Current also immediately releases pre-authorized blocks for variable-amount purchases, such as B. Petrol stations, which usually block your account for up to 10 days. Current will unblock you and transfer the money back to your account.
At the time of this article’s update, Current was also offering a $50 bonus when new members sign up for Premium.
- Cost: $4.99 per month for Premium
- Maximum advance: $25 to $200 Overdraft protection
5. Chime – Best for those tired of bank fees
chime is an app connected to Chime’s checking account. The Chime app allows users to receive directly deposited paychecks up to two days earlier. The app sends alerts for each new transaction to help users keep track of spending and spot unauthorized spending. In case a user loses their debit card or notices a suspicious transaction, they can immediately deactivate the debit card in the app.
Chime comes with the SpotMe service, which allows account holders to overdraw their accounts up to $200. However, the limit for new users is $20. Chime deducts the overdraft amount from the user’s next paycheck, helping users cover expenses without worrying about overdraft fees.
Chime accounts are free to use. Instead of charging its customers banking fees, Chime makes money from fees charged to merchants for every debit card transaction.
- Cost: none
- Maximum advance: $20 to $200 Overdraft protection
6. MoneyLion – Best for those who receive direct deposits
MoneyLion is another option that comes with interest-free cash loans and accelerated direct deposits to help users cover expenses between paychecks.
Its Instacash service offers interest-free cash advances to cover unexpected expenses for users with recurring direct deposits. Up to $25 in cash advances is available initially, but eligible users can qualify for up to $250.
There are no fees associated with a MoneyLion account. Users can pay an optional fee for speeding up transfers from Instacash.
MoneyLion also offers an online account called RoarMoney which is needed to get faster direct deposits and unlock the highest cash advance amounts. There is a $1 monthly fee for a RoarMoney account.
- Cost: $1 per month to unlock the highest cash advance amounts
- Maximum Advance: $25 to $250
Pros and cons of a cash advance app
Although cash advance apps can help meet emergency expenses, there are also some risks that come with using them.
Benefits of Cash Advance Apps:
- Consumers can conveniently access funds to cover emergency expenses ahead of their next paycheck.
- Cash advance apps are available at a much lower price – or none at all – than payday loans.
- Some of the apps have helpful budgeting tools, such as B. Dave’s Yours to Spend feature.
- A cash advance app makes it easier to avoid overdraft fees by funding your account before it becomes overdrawn. Some of the apps even cover overdrafts automatically.
Disadvantages of cash advance apps:
- Cash advances can create a debt trap if users can’t repay the loan with their next paycheck.
- The apps can encourage bad spending habits because the advance funds don’t necessarily have to be spent only in emergencies.
- Some of the apps still come with fees, even if they are lower than the cost of payday loans.
- When you sign up for a cash advance app, you are sharing personal information and potentially putting it at risk. An analysis by PaymentsJournal found that 70 percent of top financial apps do not fully protect users’ private information.
The days between paychecks can seem like a major handicap, especially for low-income demographics. Cash advance apps can help provide additional assistance in covering emergency expenses, but it’s best to combine them with building an emergency fund. That way, you’ll have short-term protection from the app when you need it, while also practicing better saving habits.