Should you use a paycheck advance loan app?

Open full sized image

Uh-oh. When is payday?

© Drazen Zigic––iStock/Getty Images

Maybe you’re struggling financially, but it’s still a few days until payday. Perhaps you need a couple hundred bucks to pay a bill or two—something to close the gap. Enter the paycheck advance app, which allows you to get a portion of your paycheck early, saving the day and seemingly with little cost.

But this extra financial help is actually an online loan, and if you aren’t careful, you could get caught in a vicious cycle. Paycheck advance apps may be convenient, but there’s more to them than meets the eye.

In recent years, payday loans have fallen out of favor. They come with exorbitant fees and a predatory reputation, so it’s no surprise that many consumers have sought an alternative, and paycheck advance apps are filling the gap.

With a paycheck advance app, you receive a portion of your regular pay, typically $50 to $500, sooner than you normally would. You can use the money to pay bills or handle an emergency, and when payday arrives, the loan amount is automatically deducted from your paycheck.

Paycheck advance apps are designed to be convenient and provide instant cash. There’s no need to go to a seedy-feeling payday loan location or fill out additional applications.

There are a variety of paycheck advance apps that work in different ways. Some common types are:

In general, advance amounts vary. Some paycheck advance apps might look at your banking history to determine how much you’re eligible for. No matter the format, though, the crux is that you can access your money sooner than your next payday, and you don’t usually need to have a credit check.

At first glance, a paycheck advance may seem like a good deal. Typically, the fees are initially lower than a traditional payday loan, and you don’t pay recurring interest charges. Instead, you pay a subscription fee and possibly another fee if you want instant access to your money.

Some paycheck advance apps offer free trials. If you need a one-off advance to avoid overdraft fees from an unexpected expense, you may be able to sign up for a trial, get your money, and then pay it off before the subscription kicks in.

The biggest risk to your budget from paycheck advances is if you use the apps regularly. Most monthly subscriptions are less than $10, but some cost $28 (or more). And if you need cash instantly, rather than waiting one to three business days for Automated Clearing House (ACH) processing, you could pay fees of $15 or more for each transaction.

Once you get stuck in the cycle of needing extra money, it can be hard to get out. If you’re regularly borrowing money from your future earnings to pay for today’s expenses, saving enough to get ahead could be difficult.

Paycheck advance loans can seem like a viable alternative to a traditional payday loan or a predatory online cash advance loan with high interest rates. But creating and sticking to a budget and building an emergency fund is a smarter strategy.

Although they might be cheaper and more manageable than payday loans, paycheck advance apps can still encourage a debt cycle that can be detrimental to your long-term financial well-being and savings goals.