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Cash & Payday Advance Apps

By Spodek Law Group | February 20, 2024

The Pros and Cons of Cash and Payday Advance Apps

Cash and payday advance apps like Earnin, Dave, and Brigit have become increasingly popular ways for people to access money between paychecks. These apps allow you to take out a cash advance on your upcoming paycheck for a small fee or “tip.” While these services can provide quick cash in a pinch, they also come with risks.

How Cash Advance Apps Work

Cash advance apps are marketed as ways to access earned wages before payday. Most apps connect to your bank account to analyze your income streams and determine how much you can borrow. For example, if you get paid $1,000 every two weeks, an app may let you take out $100 per day based on your average daily income.The apps do not charge interest on the advances. Instead, they ask for a voluntary “tip” which typically ranges from $1-$10 per transaction or a monthly membership fee. The tips and fees are how these companies make money.Some popular cash advance apps include:

  • Earnin: Lets you take out up to $100 per day and up to $500 per pay period. Asks for tips but does not require them.
  • Dave: Offers advances of up to $100 per day. Charges a monthly membership fee of $1 after a free first month.
  • Brigit: Provides advances up to $250 and charges a monthly fee up to $14.99 after a free first month.

The Benefits

Cash advance apps provide quick access to money to cover emergency expenses between paychecks. Their convenience and lack of credit checks make them appealing options.Potential benefits include:

  • Quick cash – Money is deposited instantly into your bank account.
  • Payday flexibility – Access wages already earned before your paycheck arrives.
  • No interest charges – Apps rely on tips/fees rather than interest rates.
  • No credit checks – Approval is based on bank account deposits, not credit scores.

This makes them helpful for covering unexpected bills like medical expenses or car repairs when your paycheck is still days away.

The Risks

While cash advance apps provide short-term relief, they also pose financial risks, especially if used frequently or relied on for non-emergencies.Potential downsides include:

  • Fees add up – “Tips” and fees can become expensive, like high-interest loans.
  • Could trigger overdrafts – If money expected from next paycheck doesn’t appear, overdrafts can result. Apps may debit money owed if they provided more cash than your income supported.
  • Spiraling debt – It becomes tempting to take repeated advances, making it harder to catch up financially.
  • Privacy concerns – Sharing bank login credentials raises security issues.

As a result, cash advance apps likely do more harm than good if used regularly rather than occasionally for true emergencies.

Alternatives to Consider

Before turning to cash advance apps, consider safer alternatives like:

  • Tapping into an emergency savings fund
  • Using a credit card or personal loan through your bank
  • Asking for an advance directly through your employer
  • Borrowing from family or friends
  • Using bill forbearance programs
  • Setting up payment plans for expenses

The bottom line is that while cash advance apps provide quick access to cash, the convenience comes at a steep price. Their fees and risks can trap users in cycles of debt. Save them only as an absolute last resort rather than a recurring credit solution.

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