Payday Advance Apps: Everything You Need to Know
Payday advance or pay advance apps are apps that will advance you or allow you to borrow money before your payday, based upon the amount they predict you should have earned up to that point. The apps predict how much and the timing of what you earn based on bank, location, and employer data. The advances usually start at around $100 and and using the advante feature normally requires a membership, tipping, or has associated fees.
Payday advance apps can easily be confused with payday loan apps, cash advances, or payday loans. While you can get money advanced to you from payday advance apps, payday advance apps do not consider themselves a loan and do not follow normal federal and state regulations on payday lending. In addition, payday advance apps do not build credit history so you won’t improve your credit score. In comparison, payday lenders and payday loan alternatives like Possible follow all state and federal regulations, report APRs (annual percentage rate) and fees according to the consumer according to the Truth in Lending Act (TILA), and build credit history by reporting payments to the credit bureaus.
Applying for a payday advance app
Normally payday advance apps require their customers to connect their bank accounts, usually a checking account and not a savings account, to the application in order to monitor historical bank data across linked user bank accounts. This serves the purpose of creating a reliable estimation of the customer’s pay dates and average earnings. Anyone looking to take out a payday advance with one of these applications will need to have a bank account that has several months of user history typically a minimum of three months. These advance providers usually will not offer a payday advance unless there has been more than at least two paychecks from the customer’s current place of employment. The application process can be more difficult for potential customers who work in the gig economy or other forms of employment where it can be difficult for an algorithm to detect consistently timed payment dates. Potential customers should also be aware that payday advance app algorithms search for historic behavioral patterns when their pay date last arrived and you may be denied if they have figured out that you have a pattern of spending their paychecks immediately upon receiving them or have lots of debt payments in your transaction history.
Costs of using a payday advance app
The charges a customer might encounter will vary depending on the payday advance app the customer chooses to apply with. Some payday advance providers like Earnin elect to charge no interest, and opt for customers to provide optional amounts in addition to their loan amount as a way to “pay it forward.” Other payday advance providers like Brigit or Dave charge a membership fee or add additional fees based on instant transfer of funds and other features and services.
Tips, membership fees or other charges are not disclosed in the form of an APR with customary loan disclosures due to existing loopholes and gray areas of regulations. For example, the American Banker found that suggested tips on the Earnin app can equate to a 730% APR, higher than payday loans online and much higher than loan providers such as Possible with a 150-20% annual percentage rate (APR). That’s one reason Earnin has been subpoenaed by New York State Regulators according to a recent New York Post story. New York regulators have concerns that payday advance apps are skirting state lending laws by acting as a lender while not complying with regulations lenders are under.
In contrast, payday loan apps, payday alternatives and payday lenders charge an interest rate or finance charge when disbursing the loan that could be within the $15 – $20 per $100 range. Loans with Possible have a similar fee but customers have multiple pay periods to repay, allowing for greater flexibility and for consumers to build credit history with the hope of improving your credit score.
Benefits of using a payday advance app
Even with the costs, there are many benefits of using a payday advance app. Please do your own research before selecting the right solution for you.
- It usually takes 1 day or less to receive money
- 24 hour access to request money
- Option to avoid high short term loan fees, especially if you don’t tip or have any associated fees with getting the payday advance
- Access to additional financial protection such as overdraft protection
- Similar to no credit check loans, usually no credit check and no minimum credit score – therefore, no credit or poor credit is OK
Overview of the Earnin app
Earnin allows its users to cash out up to $100 a day and up to $500 per paycheck period. There are no up-front interest charges. Instead, Earnin allows users to “tip” what they believe is fair as they repay their loan amount in what the app calls a “pay-it-forward” model. To use the app before payday, all you have to do is connect your bank account and add your employment info. After you set up your account, you’ll have to upload copies of your timesheets or enroll in Automatic Earnings to have Earnin track your hours automatically, using your phone’s GPS to determine when you’re at work, which can raise some concerns about geo-location privacy. That said, Earnin is relatively secure in that they use 256-bit encryption technology which ensures a strong internal safeguard for the privacy and security of users’ bank account information.
Earnin also offers optional features like Balance shield which provides financial protection to the users by preventing their bank account from being overdrawn. Another optional add-on is Health Aid, wherein users can submit medical billing information, have the Earnin team negotiate with their doctor’s billing office to reduce the balance and set up a favorable monthly payment plan. For this service, users can choose flat dollar additional fee in repayment for the service.
As with other payday advance apps, the starting dollar amount you can advance is usually low ($100). Over time as the app learns your habits and you have advance repayment history, you may be allowed to advance more money. Note that payday advance apps do not build credit history. Even with a successful history of repaying your advance, Earnin does not report your on-time payments to the credit bureaus.
Overview of the Dave app
Dave allows users to get a payday advance of up to one hundred dollars, with no interest or credit checks required as part of their advance agreement. Users tip what they believe is fair as part of the repayment program and similar to Earnin, users must connect their bank accounts or create a checking account with Dave, and prove employment patterns as part of advance eligibility. Ideally, you also have direct deposit from your employer directly into the active checking account you have linked.
Dave may not be ideal if you need immediate funds and are currently cash strapped, as they charge additional costs for faster fund delivery. With Dave, you have two delivery options — standard or express. The standard option takes from one business day to three business days to deliver the advance to your checking account, but is free to use as a member of Dave. The express option can be delivered to your debit card within eight hours, but will cost a small fee of $4.99.
Dave also has some neat additional financial services features that’ll cost you an additional $1 / month. You can elect to have Dave monitor your finances and alert you if you are nearing a bank overdraft. Since overdraft fees typically cost somewhere in the range of $35, for potential customers who frequently run into overdraft issues with their banks, Dave could be useful financial protection method for those who overdraft their accounts often. Dave uses 2048-bit encryption to protect the transmission of customer data. They don’t store bank login information and they also hire external security teams to run assessments that discover and allow their teams to fix flaws that could lead to stolen data. Lastly, for the socially conscious, Dave donates a percentage of tips to Trees for the Future, a non-profit which provides families in Sub-Saharan Africa with sustainable food sources, livestock feed, products to sell, and fuelwood through the planting of trees.
As with other payday advance apps, the starting dollar amount advanced will be lower than the amount you can borrow through a payday loan, speedy cash advance, or alternative loan such as Possible. Note that similar to Earnin, even with a successful history showing you repay your advances, Dave does not report your on-time payments to the credit bureaus. Lastly, watch out for those instant fund fees. If you use 4-5 advances per month, those fees can really add up!
Overview of the Brigit app
Brigit allows its users to get a payday advance of up to $250 with no interest charges or credit checks required. Like Dave and Earnin, the starting pay advance is usually closer to $100. The Brigit app is free to use and includes budgeting and account monitoring tools to help users manage their finances with their linked bank accounts, usually a checking account.
For a subscription fee of $9.99/month, Brigit will also provide its users with instant cash transfers via the debit system, no-cost repayment extensions, and automated cash advance plus a nominal $9 fee if the user is nearing an overdraft. Brigit does not analyze user credit information and has no effect on the credit score of their customers, positive or negative. Brigit uses 256 bit encryption to protect stored user data on their servers. A benefit of the Brigit is that there are no additional fees aside from the monthly subscription cost; however, by that same token the downside of Brigit is that you will pay the monthly subscription cost as an active member whether you need a payday advance or use its services are not.
As with other payday advance apps, the starting dollar amount advanced will be lower than the amount you can borrow through a payday loan or other short-term financial lender. You also won’t be able to build credit history like a credit-builder loan. As with Dave and Earnin, Brigit does not disclose APR or the interest rate because they don’t operate under federal or state loan regulations since they are considered a payday advance, not a loan.
Possible builds credit history
Unlike payday advance apps, Possible Finance loans also allow customers to build their credit. Once approved, we report the status of your loan to the credit bureaus which can help build credit history. As a direct lender, we also don’t require that potential customers receive income on a consistent bi-weekly schedule, as long as the connected bank account, usually a checking account, is currently receiving income. This allows us to support gig economy workers and recent hires. Lastly, applicants can get approved up to $500 (varies by state) on even their first loan application, a higher dollar amount than most payday advance apps.
What if you can’t pay back a payday advance app?
Failure to pay a payday advance app back may result in being banned from the app and from using the payday advance app again. However, the payday advance app will continue trying to withdraw money from your bank account which could cause overdraft fees to stack up. Therefore, if you plan on not paying back the payday advance app, you’ll need to also disconnect your bank account or tell your bank to stop ACH withdrawals on your account to prevent overdraft fees and payday advance apps from overdrafting your account. Of course, if you don’t plan on paying the payday advance app back, don’t take the payday advance in the first place. Lots of debt through short-term small-dollar loans, title loans, and credit cards combined with NSF fees from overdrawn bank accounts due to these apps can put you in a tough financial situation.
How secure are payday advance apps?
While customers may be concerns about potential privacy issues by linking their bank accounts with payday advance apps, the industry of bank-linking aggregators has established an early reputation of competence through enforcement of access controls, routine security testing, and rigorous encryption standards. Business experts and technology professions acknowledge that the bank linking industry faces the dual issue of having to compete with the big banks, and having razor-slim margins for error with security, as a single breach would permanently erode customer trust and relegate the offender to the margins of the industry. The banking industry on the other hand has argued that the dangers of bank aggregators “include potential vulnerability to cyber fraud, unauthorized transactions and identity theft…A key risk is that the aggregators could be storing all consumer financial information or security credentials in one place, creating a new and heightened security risk for consumers.”
In theory, payday advance apps or pay advance apps are useful to those who run into timing problems due to large bills, like mortgage and rent, which come due a few days before their paycheck clears. Getting an online payday advance through an app can be less costly than taking out a payday loan, cash advance, or paying overdraft fees. While the usefulness of these advances can vary based on the terms of the app, the way it is used, and how much the membership fees and tips come out to in terms of APRs, they are potential tools that can solve immediate cash problems.
For more transparency and longer term financial health, getting a loan from Possible may be the right solution. Because Possible is regulated by federal and state regulations, all interest and fees are shown to the consumer upfront. And Possible is significantly cheaper than payday loans and many payday advance apps at 150-200% APR, more flexible in repayment terms (up to multiple months), and builds credit history by reporting to Experian, Equifax, and TransUnion. Please do your own due diligence to determine the best solution for your situation.