Blog-article-banner
Varo Home Content Background

Borrowing

Cash advance apps: What you need to know

Cash advance apps can be pretty handy in a pinch. They can help you get an emergency loan or even just a few extra bucks to tide you over until your next paycheck. However, they are often not the most practical way of getting cash, especially if cash flow is an ongoing problem.

These apps are for short-term use, like when something unexpected happens and you need cash right away. You might use a cash advance app to cover an emergency car repair or an unexpected medical bill. But if you're constantly using cash advance apps to cover everyday expenses, it's time to rethink your budget.

In this article, you'll learn more about how direct-to-consumer cash advance apps work and their pros and cons. You'll also find out when it's time to consider other options, like using a personal loan or opening a line of credit.

The basics of direct-to-consumer cash advance apps

Cash advance apps are a type of direct-to-consumer lending. This means they're offered by lenders that work directly with consumers without going through a middleman.

There are a few different cash advance apps on the market, but they all work in basically the same way. You apply for an advance, and if approved, you receive an instant loan, or the loan will be issued within 24 hours. Either way, it's very quick. The interest rate on cash advance loans is usually pretty high, so you'll want to make sure you can pay the loan back quickly to avoid getting deeper into debt.

The advance is usually issued against an upcoming deposit like your paycheck. Money will need to be readily available in your account when the loan is due. You may be charged additional fees if you can't repay the loan. If you default on the loan, your debt may be sold to a collection agency.

Some of these apps have monthly subscription fees to access their features, and instant delivery is sometimes an additional charge. They can also add optional tips for using their services. For anyone who hasn't been keeping track, that's a:

  • Subscription fee

  • Premium charges

  • Interest

  • Optional tip

Costs can really add up when using a cash advance app, but they can help you out of a tough spot when you need it.

Features of a cash advance app

Each cash advance app has specific features and requirements, but you can expect some general things from most of them.

For example, cash advance apps typically offer instant loans with no credit check required. This can be helpful if you have bad credit or no credit history at all. Keep in mind, though, that they aren't the same as credit cards.

Most cash advance apps also have an option for automatic repayment, which can be handy if you're the forgetful type, just set it to collect your payment on the due day, and it's done for you—easy. Some even offer bonuses for users who repay their loans on time.

These kinds of services can provide a safety net to help consumers avoid overdraft fees or late fees on their credit cards. Some apps come loaded with features like budgeting tools to help their users manage money more proactively.

Pros and cons of using cash advance apps

There are both pros and cons to using cash advance apps. Here's a look at some of the key benefits and drawbacks:

Pros:

  • It can help you get cash fast in an emergency.

  • No credit check required.

  • Some apps offer introductory bonuses like a free one-off advance. Automatic repayment can help you stay on track.

Cons:

  • Interest rates can be high

  • It may be difficult to repay the loan if you have ongoing cash flow problems

  • You may be charged additional fees if you can't repay the loan

  • Cash advance apps can be more convenient than peer-to-peer lending, but it comes at a cost; they're more expensive. We can't stress enough how important it is to be sure you can repay the loan before you apply, and if you do have a problem, contact the service provider as soon as possible, as they may be able to help.

Things to know before use

If you're living paycheck to paycheck, cash advance apps can help you make ends meet in a pinch, but they're not a long-term solution to problems. Someone relying on cash advances to tide them over from month to month with no end in sight is doing themselves no favors. If this sounds familiar, you could reach out for free financial advice service—help is available.

Before using a cash advance app, here are some things to consider:

Qualifying for an advance

Most cash advance apps require a history of direct deposits and signs that you really use the account (this helps protect them from fraud and proves you're a real person). The cash advance app may need you to hold an affiliated bank account to qualify for additional features, like a higher advance amount or instant loans.

They will also look at your overall bank account health to see how responsible you are with your money and any problematic behaviors that may affect your ability to repay the loan. A promising sign could be if you have a history of repaying previous advances on time.

This is not the same as a credit check, but cash advance apps will want to get an idea of your financial reliability. A cash advance app is still responsible for lending sensibly and not putting people into difficult situations.

Fees for use and optional tips

Cash advance apps typically make money by charging interest on the loans they give out. The average interest rate varies between providers, so it's worth comparing before you sign up. These kinds of loans are known to have extremely high Annual Percentage Rates (APR), typically over 300%. The higher this number, the more you're paying back on the loan, low APRs are much kinder for fees.

Short-term loan companies argue that using APR is not a fair assessment of the costs involved as these loans are designed to be for a small-dollar amount and over a short amount of time. However, cash advance apps will still want to be clear about the fees associated with their service.

Alongside any interest payments, consumers will need to pay for any monthly subscription associated with the cash advance app. Some services will offer a free trial period to new customers before they start being charged.

Tips are another way cash advance apps make money. Some of these companies apply optional tips to their cash advances instead of a standard interest rate. These tips are voluntary, but the apps will add them as standard so keep a sharp eye out and reduce them to zero if you don't want to pay a tip.

If you're unable to repay the loan on time, you may be charged additional fees. And if you default on the loan, your debt may be sold to a collection agency.

Are cash advance apps the same as loans?

Cash advance apps are a type of loan, but not all loans are cash advances. Yeah, that sounds confusing, but it makes sense, promise! The key difference is that cash advances are generally offered at a higher interest rate than traditional loans. This is because cash advance apps are designed for people who need money quickly and may not have the best credit score.

As a result, they're considered to be high-risk borrowers. Cash advance apps typically give you access to your funds within 24 hours. Traditional loans can take several days or even weeks to be processed. Loans are what people would take out for big purchases and pay back over a number of years. Cash advances can't be used this way, and they're only for small amounts.

Should you use a cash advance app or a traditional loan?

No one can tell you what the best option for you is, but taking out a traditional loan just to cover packed lunches for the last week of the month won't be as effective (or as fast) as scoring a cash advance. Loans take longer to come through, so they're not ideal for smaller amounts that are needed urgently. On the other hand, a cash advance isn't going to be helpful for something like a house renovation or buying a new car—you really should be looking at a traditional loan for that.

What's more important than anything is what you're using the services for. A cash advance is good for helping you out of unavoidable tight spots. It's not a good idea to apply for an advance to fund a night out or to order a takeaway every month. Over-reliance on a service like this will be very costly in the long run. But it's up to you what justifies using the service. Just remember that you'll end up paying everything back plus interest no matter what type of credit you use.

Tips for avoiding dependency on a cash advance app

If you find yourself relying on cash advance apps to make ends meet, it's important to take steps to break this dependency. Here are some tips that can help:

  • Try to build up an

    emergency fund

    so you have money to fall back on in case of unexpected expenses.

  • Look for ways to cut down on your monthly expenses. This could involve switching to a cheaper phone plan or cooking at home more often.

  • If you have multiple cash advance apps, try consolidating your debt by taking out one big loan from a traditional lender. This will help you save money on interest payments and fees.

  • Create a budget

    and stick to it. This will help you track your spending and make sure you're spending appropriately.

  • Make sure you always repay your cash advance loans on time. This will help you avoid late fees and keep your debt under control.

  • Call your bank and ask if they can waive any fees you're worried about. They can help on a case-by-case basis.

  • Negotiate with creditors for better repayment terms, a payment holiday, or a lower interest rate.

Cash advance apps can be a helpful way to get cash quickly. However, there may be better alternatives available for you.

Alternatives to cash advance apps

There are a few different alternatives to cash advance apps that you can consider, depending on what bills are knocking on your door and how quickly you need that extra cash for your car insurance or Taylor Swift tickets (you do you, boo).

If you need cash quickly:

  • You could ask a friend or family member for a loan

  • You could sell some of your possessions

  • You could open an overdraft protection with your bank

If you have time to wait for the cash:

  • You could apply for a personal loan from a bank or credit union

  • You could use a peer-to-peer lending platform

  • You could get a credit card cash advance

Everyone needs help at some point, but if you end up over-reliant on a service like cash advances, your problems can snowball instead of getting better. Support is available to get you on your feet, but it's vital to be proactive and understand all your options before cash advances become a crutch instead of a stop-gap solution.

Key takeaways

The most important thing to remember about cash advance apps is that they are intended to provide short-term relief for unexpected expenses or to tide you over until your next payday. They are not intended to be used as a long-term solution for financial problems.

If you find yourself relying on cash advance apps to make ends meet, it's important to take steps to break this dependency. You can do this by building an emergency fund, cutting your monthly expenses, and consolidating your debt.

Seeking help for debt and financial problems is nothing to be ashamed of. Start by speaking with your bank and creditors to find a solution that works for everyone and keep on top of repayments to avoid late fees and further debt.

Share

Showing post 1 of