When you’re living paycheck to paycheck, an unexpected expense can disrupt plans dramatically. Cash advance apps are a short-term solution to such financial disruptions.
A Bankrate survey found that more than half of respondents would be unable to cover a surprise expense of $1,000. Without any emergency funds to fall back on, problems like a failing transmission or a burst pipe could sabotage budget plans and cause financial strain.
A common way to cover expenses until the next paycheck is to borrow money that you pay back with a next 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 longer-term financial problems, as they can accumulate into more debt.
Cash advance apps are a newer development that also provide quick cash before your next paycheck, but tend to charge much lower fees than payday lenders or none at all. App makers earn money through voluntary “tips” payments or membership fees, rather than interest. Falling costs, coupled with stagnating wages and financial hardship caused by the coronavirus pandemic, may explain why cash advance apps are becoming increasingly popular.
1. Earnin – Best for Hourly Workers
Earnin is an app that allows you to quickly borrow against your next paycheck without any fees or interest payments.
When users sign up for the app, Earnin connects their bank accounts to verify their payment schedules. The app calculates users’ hours by tracking how long they’ve been at work using their phone’s GPS or by allowing them to submit a timesheet. It then determines the hourly pay rate based on the amount the user receives in direct deposit.
Earnin allows you to withdraw wages that have not yet been paid by employers. When the next paycheck arrives in your bank account, Earnin automatically debits your account for the borrowed amount.
Initially, users can only withdraw up to $100 per pay period. The maximum amount that can be withdrawn is $500, but only after users establish an app usage and redemption record.
There are no fees attached to the service. Earnin earns money from voluntary tips from its users.
- Costs: voluntary tips
- Maximum advance: $100 to $500
2. Dave – Best for overdraft protection
If overdraft fees are cutting into your budget, Dave can help. Dave’s app looks for potential overdrafts, like an upcoming bill, and alerts users before their accounts are overdrawn. The app also provides a Yours to Spend summary, a personalized budget that considers past income and expenses to estimate how much users are free to spend.
If you don’t have the funds available for an upcoming expense, Dave can lend a small advance. It determines the maximum advance amount based on the amount you are able to repay on the next payday. Users are expected to repay the interest-free advance as soon as their next paycheck is deposited.
Additionally, Dave can guide users to find a side hustle in the gig economy. A side hustle is a job taken on in addition to a main job, and it may have more flexible hours and pay. This can help eliminate the need for a short-term loan by providing additional income between paychecks.
Dave’s membership costs $1 per month, but users who want to show more support for the service can be tipped. 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 early.
- Costs: $1 per month plus voluntary tips
- Maximum advance: $250
3. Brigit – Best Features
Brigit is another app that helps with budget management and offers cash advances to stretch funds between paychecks.
To get an advance, Brigit must log in to a user’s current account that has an active history for at least 60 days. Additionally, the checking account must have a positive balance and a record of at least three payroll direct deposits. Ratings of your bank account and spending history factor into a Brigit Score, which the app uses to determine if you qualify for Instant Money. Users may qualify for up to $250 in cash advances. Brigit then sets a due date for repayment of the loan.
Users who qualify for instant cash through Brigit also have the option of activating an auto-transfer feature that sends an advance to the user’s bank account when they are at risk of an overdraft. Plus, like the Dave app, Brigit can help you find a side hustle to generate extra income when you need it.
Brigit’s basic membership 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 to improve users’ financial health, including a credit generator, identity theft protection, and refund extensions that allow users to reschedule their due dates.
- Costs: $9.99 per month to access the cash advance feature
- Maximum advance: $250
4. Current – Best for spending
Current is a current account available only through a mobile application. 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 per month for a Premium account. With a premium account, direct deposits are transferred to your account up to two days earlier and overdrafts are covered free of charge – up to $25 overdraft for new account holders, with the option to increase this limit to $200 over time. Current also instantly releases pre-authorized holds on purchases with varying amounts, such as gas stations, which typically place a hold on your account for up to 10 days. Current releases the hold and returns the funds to your account.
At the time of updating this article, Current was also offering a $50 bonus when new members sign up for Premium.
- Costs: $4.99 per month for Premium
- Maximum advance: $25 to $200 in overdraft protection
5. Chime – Ideal for those who are fed up with bank charges
Chime is an app associated with Chime’s current account. With the Chime app, users can receive direct-deposited paychecks up to two days in advance. The app sends alerts for any new transactions to help users track their spending and detect any unauthorized spending. In the event that a user loses their debit card or notices a suspicious transaction, they can immediately deactivate the debit card from the app.
Chime comes with the SpotMe service, which allows account holders to withdraw up to $200 from their accounts. The limit for new users, however, is $20. Chime deducts the overdraft amount from the user’s next paycheck, helping users cover their expenses without having to worry about overdraft fees.
Chime accounts are free. Instead of charging bank fees to its customers, Chime makes money from fees charged to merchants for each debit card transaction.
- Fees: none
- Maximum advance: $20 to $200 in overdraft protection
6. MoneyLion – Best for those who receive direct deposits
MoneyLion is another option that includes interest-free cash loans and accelerated direct deposits to help users cover expenses between paychecks.
Its Instacash service provides interest-free cash advances to help cover unexpected user expenses with recurring direct deposits. Up to $25 in cash advances are available initially, but eligible users can qualify for a maximum of $250.
There are no required fees attached to a MoneyLion account. Users can pay an optional fee to expedite transfers from Instacash.
MoneyLion also offers an online account called RoarMoney, which is needed to receive faster direct deposits and unlock the highest amounts for cash advances. There is a $1 monthly fee for a RoarMoney account.
- Costs: $1 per month to unlock the highest cash advance amounts
- Maximum advance: $25 to $250
Advantages and disadvantages of using a cash advance app
While cash advance apps can help cover emergency expenses, there are also some risks to consider when using them.
Benefits of Cash Advance Apps:
- Consumers can easily access funds to cover emergency expenses before the next paycheck.
- Cash advance apps are priced much lower – or not at all – than payday loans.
- Some of the apps come with helpful budgeting tools, like Dave’s Yours to Spend feature.
- With a cash advance app, you can more easily avoid overdraft fees by funding your account before it becomes overdrawn. Several applications even cover overdrafts automatically.
Disadvantages of Cash Advance Apps:
- Cash advances can lead to a debt trap when users are unable to repay the loan with their next paycheck.
- Apps can encourage bad spending habits, as advanced funds don’t have to be spent only on emergencies.
- Some applications still have fees, even if these fees are lower than the cost of payday loans.
- Signing up for a cash advance app means you are sharing personal data and potentially putting it at risk. An analysis by PaymentsJournal found that 70% of leading financial apps fail to fully protect users’ private information.
At the end of the line
The days between paychecks can seem like a major hurdle, especially for low-income populations. Cash advance apps can help provide additional help with emergency expenses, but are best paired with building up emergency cash savings. This way, you’ll get short-term coverage from the app if needed, while building better savings habits.