Sometimes you need extra cash to tide you over to payday. Several apps are eager to provide that service, marketing themselves as an easy, no interest way to get a small loan. However, not all cash advance apps were created equal. Before signing up for one, research it first and watch out for hidden fees and other pitfalls.
What to know before using a cash advance app
Consider these tips before you use a cash advance or payday loan app:
- Understand how cash advance loan apps work. TheCollegeInvestor.com
defines cash advance loan apps as, “apps that allow you to deposit
money that you’ve already earned into your checking account before
payday.” Some cash advance apps work based on earned wages by partnering
with employers, while others work directly with consumers. After
calculating your current earnings, apps grant you a small loan. The
amount of your loan is then deducted from your next paycheck. Some apps
require monthly membership fees. Others charge fixed fees for loans or
allow you to make voluntary “tips.”
- Get to know the lender. If you decide to use an app to get a cash advance, look up the financing company on BBB.org first. Make sure the company has a reputation for honest business practices. In addition, ConsumerFinance.gov recommends finding out if the lender is licensed by your state, which means better protection for you as well.
- Read the terms carefully. Take your time reading
the terms of the loan carefully. Be sure to understand when the loan
must be repaid and how much you will owe if you don’t pay on time.
- Find out about fees. Be suspicious of cash advance apps that claim to be totally free. That means there are usually hidden fees and costs, warns NextAdvisor.
Fees may be disguised under other names – including “tips,”
“donations,” “membership fees,” or “premium account access.” Find out
what you’ll pay and be aware that fees that seem small can add up over
time. For example, Nerd Wallet
points out that paying $2 to withdraw $20 for two weeks comes out to an
annual percentage rate of 260%. That’s comparable to what traditional
payday lenders charge.
- Be careful with your personal information. Most
cash advance loan apps need access to your banking information to work.
Make sure the company’s website and connections are secure and read
their data privacy policies before sharing your information.
- Never pay upfront fees. If a lender asks you to pay
fees before giving you any money, don’t agree. Charging consumers
undisclosed upfront fees is illegal and a sign of a scam.
- Budget accordingly. Always remember that getting
early access to your money through a cash advance loan means your next
paycheck will be smaller. While this kind of loan can be helpful if you
find yourself in a small financial emergency before payday, you’ll need
to plan ahead to make ends meet during your next pay period.
- Keep your documentation. BBB has received reports of consumers getting calls from collections agencies
years after they repaid a payday loan. Some calls were a result of
human error, but others were attempts to scam consumers out of money.
Stay safe by keeping documentation that states your loans were paid in
- Consider alternatives to a loan. Cash advance loans can become very expensive, especially if you miss your repayment date. Consumer.gov
recommends considering other ways to borrow money, including using your
credit card, asking family or friends for a loan, or inquiring about a
loan at your bank or credit union. If you need a loan because you are
unable to pay one of your regular bills, try calling the company and
asking for assistance. For example, many lenders and creditors are
helping borrowers affected by COVID-19 by offering deferment on mortgage
loans or credit card debt.