Cash Advance Apps: Everything You Need to Know
Short on cash? A cash advance app can help, but is it worth the cost?
Contributing Writer at Tally
August 12, 2021
Even those with the best budgets can have a financial emergency that puts them in a bind. Whether it's a medical bill, car repair, home repair or another unexpected expense, these financial burdens may exceed the cash you have on hand.
This is where loans from cash advance apps can help. They offer quick access to funds to help smooth out your personal finances until your next payday.
While they can be helpful, they do have some drawbacks that can cause issues for borrowers.
Below, we'll discuss:
What cash advance apps are
How they work
What to expect
Cash advance app alternatives that may be a better option
What are cash advance apps?
Cash advance apps are similar to payday loans, as they offer short-term, high-interest loans to get you through until your next payday.
Cash advance apps often have lower fees than traditional payday lenders, and you can download the tool in seconds from your app store and borrow money from the comfort of your home. Plus, some cash advance apps will proactively lend you money if they detect an imminent overdraft.
Some cash advance apps are also attached to larger financial services, like budgeting and banking apps, that charge monthly fees and offer cash advance services.
How do cash advance apps work?
The inner workings of each cash advance app is different, but they have the same basic purpose. When you run into a cash shortage due to an emergency and your next paycheck is a week or two away, the borrower can apply for a loan until their next payday.
The cash will arrive in the borrower's checking account or savings account in a few hours to a few days. In return, the borrower agrees to repay the short-term loan plus any applicable fees and interest charges.
If you need money quickly, some apps offer express deposits. For example, the Dave app offers an express funding option that puts the cash in your account within eight hours instead of three business days. This service costs between $1.99 and $5.99.
Some cash advance apps get deep into your finances to facilitate their loans. Earnin, for example, tracks your working hours via GPS or an uploaded timesheet and determines how much your next paycheck will be. You can borrow up to $100 per day from Earnin, which you repay from your next check. There are no interest charges or fees with Earnin, but the app asks for tips.
Other apps, like Brigit and Dave, are granted access to your bank account and track your cash flow, including income, expenses and account balances. If it notices you're in danger of overdrawing your account, it'll automatically direct deposit a cash advance so you can avoid overdraft fees.
What are cash advance apps for?
Cash advance apps are for specific circumstances, much like payday loans. They are for people who find themselves suddenly in need of extra cash before their next payday. These apps could temporarily replace an emergency fund by offering access to cash in a pinch to handle unexpected expenses.
They're also for people with a limited credit history or those rebuilding their credit score after past issues and can't get a traditional loan or credit card. Many of these apps don’t require a credit check. Instead, they use income and expenses to qualify borrowers.
Do cash advance apps charge interest?
Yes and no. Some cash advance apps, like Boro, are more traditional and have set interest rates on the money you borrow. However, many cash advance apps forgo interest and earn cash in other ways.
Some apps charge a monthly fee to be a member. For example, Empower is free for 14 days but charges an $8-per-month subscription fee after that. Another example is MoneyLion, which charges a $19.99-per-month membership fee for its “Plus” subscription, though it's not required for the cash advance.
Other cash advance apps stick with a 100% free business model but request tips for their services. Earnin is an example of the tip-only business model.
While these no-interest apps may seem like great deals, you should do the math to see how the monthly fee or tip compares to a standard annual percentage rate (APR). For example, if you take out a $100 cash advance for seven days and pay just a $2 tip, you're paying 104.21% APR.
What are some alternatives to cash advance apps?
Cash advance apps can be helpful in specific situations, but there are other options to pick from.
With good credit, you may be able to get a personal loan with a 5% to 7% interest rate and longer repayment term. This will give you more time to repay the debt, meaning lower monthly payments while not paying too much in interest charges.
You can get a personal loan through various avenues: a traditional bank, credit union branch or online lender.
In some cases, a lender may have minimum loan amounts that exceed what you need. If this happens, you can take out the loan and immediately repay the unnecessary portion from the loan proceeds.
For example, if you receive $1,000 but only need $250, you can immediately make a $750 payment on the loan, leaving the $250 in the bank to cover your financial needs. This allows you to avoid paying interest on the extra cash you didn't need.
Personal loan lenders often report to the credit bureaus, so your on-time payments may also help you build credit over time.
Watch out for additional charges, including application fees and origination fees. Factor in these additional costs when comparing loan options.
Personal loan pros
Relatively low-interest rates (for those with good credit)
Longer repayment terms, meaning lower monthly payments
Some lenders deposit funds the next business day
Personal loan cons
Application and origination fees
Terms don't always align with your needs
The stretched repayment terms may lead to higher interest charges over time
It’s not instant cash; funds typically arrive the next business day or later
Generally requires a credit check
Personal line of credit
A personal line of credit works a lot like a personal loan, but there are some key differences. The most significant difference is that a line of credit isn't a lump-sum loan. Instead, it offers you access to a credit line you can draw from.
You only make principal and interest payments on the amount you use, giving you more financial flexibility.
Also, a line of credit is revolving debt, meaning you can use it multiple times, as long as you have enough remaining credit. A personal loan is a one-time-use device.
In some cases, the personal line of credit lender will issue you a debit card or a credit card that pulls directly from the line of credit, making it easier to access the funds.
Finally, while a personal loan will typically have a fixed interest rate, personal lines of credit often have variable interest rates, meaning your interest rate and monthly payment can vary.
Personal line of credit pros
Access to flexible cash
You pay interest only on the amount you use
Some lenders provide a credit card or debit card for nearly immediate access to cash
Personal line of credit cons
Often have variable APR, meaning the interest rate and payment may go up
Impacts your credit utilization ratio, which may lower your credit score
Typically requires a credit check
If your credit card offers a cash advance feature, you can also access cash by using your credit card at an ATM like a debit card. This feature will give you cash and apply that withdrawal against your credit limit.
This is a quick and easy way to get cash, but there are some significant downsides, starting with the upfront fees. You'll generally pay a base cash advance fee of 3% to 5% plus whatever fee the ATM charges, which is usually $1.50 to $3.50 but can be as high as $10.
Another issue is credit card companies tend to charge a higher interest rate for a cash advance. So, your base interest rate may be 17.99%, but a cash advance may cost 23.99%. Plus, unlike interest on purchases, there is no grace period on cash advance interest — it starts accruing from the day you take out the cash advance.
Credit card cash advances also have a separate, much smaller credit limit than your purchase credit limit, significantly limiting how much you can take out on an advance. For example, you may have a $5,000 purchase limit, but your credit card issuer may limit cash advances to $700.
Credit card cash advance pros
Quick access to cash
Easy as using a debit card at an ATM
Higher interest rates than the purchase APR
Cash advance fees and ATM fees
Credit limit is a fraction of your full credit limit
Paycheck advance loan
Another option for quick cash is a paycheck advance loan through a payday lender. These brick-and-mortar lenders are similar to cash advance apps in that they offer you quick access to cash based on your upcoming paycheck, but because they have a physical presence, many can offer same-day access to cash.
However, this same-day access comes at a significant cost. They generally charge a fixed fee for their loans of $10 to $30 per $100 borrowed, translating into an astronomical APR. For example, if you borrowed $100 for two weeks until your next paycheck, and the payday lender charged a $15 fee, that equates to 400% interest.
Then comes the issue of repaying the loan, as the payment must come from your next check. If you took out a $100 loan, your next paycheck will be $110 to $130 lighter after the fee, and you may struggle to make ends meet. This can put you in a position where you have to take out another payday loan to get by, beginning a cycle that can be difficult to break.
Paycheck advance pros
Quick access to cash — sometimes on the same day
Usually no credit check
Paycheck advance cons
Could put you in a “borrow, repay, repeat” cycle every pay period
Cash advance apps: Help comes at a cost
Cash advance apps offer security for folks who find themselves struggling to make ends meet after an unexpected expense or circumstance. You can sign up for one of these apps to help avoid overdraft fees and stabilize your immediate cash flow.
Unfortunately, these apps include high monthly fees for their plans and can get you into a borrowing cycle that's hard to break. There are some alternatives that you can consider in place of these apps, like personal loans, personal lines of credit, credit card cash advances and others. But each comes with benefits and drawbacks.
If credit card debt is the root of the issue with your finances, Tally's credit card repayment app can help. It combines all your credit cards into one monthly payment and includes a lower-interest line of credit1 you can use to pay off your higher-interest credit cards.
1To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. The APR (which is the same as your interest rate) will be between 7.90% and 29.99% per year and will be based on your credit history. The APR will vary with the market based on the Prime Rate.