Nowadays, it’s easier than ever to get your hands on cash when you need it – no need to wait for your paycheck to clear. Cash advance apps can be a helpful way to borrow money from your paycheck when you’re in a cash crunch.
But what are cash advance apps, and are they safe? Here’s what you need to know.
What are cash advance apps?
Cash loan apps provide a short-term small cash advance to help you manage your expenses while you wait for your paycheck. They are different from payday loans, which have high fees and interest rates. Cash app loans are interest-free, and many are fee-free.
With a cash loan app, you get early access to money you’ve already earned but haven’t been paid. This makes cash advance apps popular with gig workers, who earn money whenever they work but don’t get paid immediately.
You can use the money from a cash loan app to pay for everyday expenses or emergency bills without committing to a loan with a lengthy term. And it’s easier to get a cash advance through an app than through a loan if you have fair credit.
How do cash advance apps work?
Cash advance apps give you early access to your paycheck. With a traditional payday loan, you give the payday advance lender your pay stubs and income information. In return, you’re given a loan and expected to repay it on or before your next payday. Sounds simple enough, but payday lenders can charge incredibly high fees and interest rates. The average interest rate is a staggering 400%.¹
When you apply for a loan through an instant money app, you must provide the lender with your employment and earning info. Then, you can request a small amount, typically $25 to $750². The lender will review your information and decide whether to give you a loan (and, if so, how much).
You will then need to pay the loan back on your next payday. Most apps require a connection to your bank account to withdraw the money automatically when you’re paid.
Are instant cash advance apps safe?
Cash advance apps are generally safe. Most use encryption to keep your data private, so you don’t have to worry about your information getting into the wrong hands.
Cash advance apps are also considered safer than payday loans because they don’t have a hefty interest rate. You might be prompted to pay a fee for a faster transfer or to leave a tip to pay for the service, though that cost is minimal.
Pros and cons of cash advance apps
Around 66% of Americans consider themselves to be living paycheck to paycheck.³ When you’re faced with an emergency, like a car repair or a medical bill, it can throw off your finances. Cash advance apps offer a fast, convenient, and more affordable way to get an advance.
With the average overdraft fee at just over $27⁴, cash advance apps are often a cheaper option for getting money fast.
The downside? Being able to tap into your earnings ahead of payday can do more harm than good financially, especially if you’re not using the apps wisely.
Before using a cash advance app, review the following pros and cons:
| Pros | Cons |
|---|---|
| Can save you money on late fees and overdraft fees. | Can result in chronic borrowing, which can lead to debt. |
| Instant funding is possible. | Short repayment periods. |
| No interest charges. | Some cash advance apps charge fees to access the platform. |
| Cash advance apps require no credit check required. | Not a long-term, sustainable solution. |
Tips for using cash loan apps
- Do your research first. Look for options that come with no extra charges, consider the speed of the advance, and find out what the limits are.
- Set a limit to only borrow what you can afford to pay back. You don’t want to get into a cycle of borrowing money to stay afloat.
- Review your bank transactions. Ensure you’re not getting charged unnecessary automatic renewal fees that can cause you to overdraft.
Alternatives to cash advance apps
Need cash fast but don’t want to use a cash advance app? Consider these alternatives.
Personal loans
A personal loan might not be your first thought if you need a small amount of cash. But, depending on the lender, you could get a small personal loan for as little as $500.⁵
The most significant benefit of a personal loan over a cash advance app is a longer repayment period. Personal loans are often unsecured and may have high interest rates, increasing the cost of borrowing money. However, compared to payday loans, personal loan rates are significantly lower.
Credit cards
Credit cards are valuable tools when paying for an unexpected expense. If you have a good credit score, you might qualify for a card with a 0% introductory interest rate. If not, you can avoid paying interest by paying off your balance in full every statement period.
However, over-reliance on credit cards can lead to high-interest debt that can be hard to dig out of.
Friend or family loans
If you have no other options, consider asking a close friend or family member for a loan. Make sure you draw up an agreement for the amount you’re borrowing and the repayment schedule. Failure to take these steps can lead to conflict or even estrangement.
Buy now, pay later apps
Buy now, pay later (BNPL) apps let you split a large purchase into smaller installments over a set period. Most don’t charge interest as long as you repay the money as promised. And, like cash advance apps, BNPL apps don’t run a hard credit check, so your credit score isn’t affected.
However, BNPL apps can make overspending easier – especially if you’re prone to buying random items on a whim. You may be charged a fee if you can’t pay the installments.
Don't spend without a plan
Whether you use a payday advance app, receive an automatic direct deposit, or get paid via paper check, a budget is critical to making your dollars stretch. If you haven’t nailed down a plan for spending (and saving), you should tackle it ASAP.
After all, you work hard for your money and want it to work just as hard for you! With tools like Chime’s MyPay, a budget can help you reach your financial goals in a way that makes sense for you and your lifestyle.
Not sure where to start? Learn how to make a budget so you can start your journey toward financial freedom.
FAQs
What is a payday loan, and how does it differ from a payday advance?
A payday loan is a direct deposit loan in which the borrower pays the lender back on their next payday. Sometimes, the borrower can request to extend the loan, though there will be interest. Payday loans typically range from $50 to $1,000,⁶, but lenders often charge extremely high interest rates – sometimes up to 400%.¹
Payday advance apps offer more flexibility and affordability for borrowers than payday loans. The most significant difference between a typical payday loan and payday advance apps is that apps don’t charge any interest since payday advances are not considered loans. Cash advance apps can be helpful budgeting tools when you need cash now.
Do cash advance apps affect my credit score?
Because most cash advance apps don’t report to the credit bureaus, using one will not impact your score. However, if you don’t repay the money you borrow, the lender could send you to collections, which could show up on your credit report and hurt your credit score.
Most cash advance apps don’t require a credit check, so your score won’t be dinged like it would when applying for a loan.
What do I need to apply for a cash advance app?
You will need to show that you have a steady income. Typically, cash advance apps require users to connect their bank accounts – usually a checking account – to the app to monitor their average earnings and repay the advance. However, there are cash advance apps with no direct deposit required. Those without a steady income or a favorable bank history might not get approved for a cash advance app.
What are the costs associated with a cash advance app?
The charges you might encounter with a cash advance app will vary depending on the app. Some apps charge a flat fee for each usage, while others charge a monthly service fee. There are free instant cash advance apps, but most encourage users to leave tips to help the app continue running.