Online payday advance apps: What you need to know

Online payday advances offer a quick and easy way to get cash between paychecks. If you find you’re coming up short one week, you can request a small loan and pay it back on your next payday. The problem is, traditional payday loans come with steep costs — over 600% in some states, according to Pew research. But newer cash advance apps are offering what can be a more affordable alternative. 

Here’s how these apps work and what to know before getting one.

What is an online payday advance?

Payday advances are small, short-term loans that you borrow and repay out of your next paycheck. Traditionally, lenders offered them through brick-and-mortar locations, but now they’re also widely available online. Here are the two main forms you can find.

Online payday loans

Online payday loans are small loans, often around $500, that borrowers have to repay within two to four weeks. While prohibited in many states, where allowed, fees are often capped somewhere between $10 and $30 per $100 borrowed. That may not seem expensive, but a two-week loan that costs $15 per $100 has an annual percentage rate (APR) of almost 400%. In comparison, the average credit card — already generally considered a more costly borrowing option than something like a personal loan — has an interest rate of 21.59%, according to the latest data from the Federal Reserve.

Cash advance apps

Cash advance apps like Dave and EarnIn are mobile apps created by financial service companies. They allow you to access small amounts of cash between paychecks when you sign up with the app. Upon approval, you can request to have money transferred to your bank account or debit card. You then repay the amount out of your next paycheck or within a short-term time frame. While cash advance apps can be more affordable than payday loans, you still need to be careful.

Most cash advance apps allow you to get an advance for free via a standard ACH bank transfer, which can take days. However, if you need the money fast, you can pay a fee to have it sent to a debit card on the same day. This is where it can get expensive. Fees vary depending on the app you use, your advance amount, and how fast you want the money.

For example, Dave offers free ACH transfers in two to three business days, but charges fees ranging from $2.99 up to $13.99 for express payments to an external debit card. While a two-week $100 loan sent to your bank account by ACH transfer could have a 0% APR, the same amount sent to your debit card would cost $6.99 — which equates to an APR of about 182%. Dave also allows for optional tips, which can be a nice gesture, but will send the APR even higher.

How to borrow money online with a payday advance

You can find online payday loans from a handful of financial service companies, such as Ace Cash Express, Check Into Cash, and Advance America. To apply, head to a lender’s website, select your state, and fill out the application (if the loans are available where you live). The application process typically requires your:

• Name
• Email address
• Physical address
• Desired loan amount
• Social Security number
• Income information
• Housing situation and payment

Payday lenders review your application and may perform a soft credit check. Within a few minutes, you can find out if you’re approved or not. If you are and you agree to the terms, the payday loan can often be sent to your bank account or debit card the same day, or within a few business days.

On the other hand, to borrow from a cash advance app, you’ll need to download and become a member of the app (which may require a subscription fee). Most require you to connect your checking account so they can assess your banking activity. They also tend to ask for your name, birthdate, address, and Social Security number (to verify your identity), but don’t run your credit.

Once you agree to the app's terms and conditions, you’ll find out how much cash you can advance. You can then choose your preferred payment method and processing speed.

Pros and cons of payday loans

Pros and cons of cash advance apps

Payday loans vs. personal loans

Unlike payday loans and cash advance apps, personal loans are designed to be paid back over a longer period of time, such as many months to several years, as opposed to two to four weeks. Personal loan approval may not be as quick as a payday loan or cash advance app, but some lenders can get you money the same day you apply.

Other major differences are cost and loan amounts. Personal loan APRs top out around 36%, while both payday loans and cash advance apps can have triple-digit APRs — this is because payday loan fees are very high relative to the amount borrowed.

Also, personal loans are typically available from about $600 to $200,000, depending on the lender and your ability to repay; while payday loans typically top out around $500 or $1,000.

The higher loan amounts available with personal loans can help you cover larger expenses, while the longer repayment terms and lower APRs make it easier to fit loan payments into your budget. On the downside, if you have bad credit, you may find it more difficult to get approved for a personal loan because the eligibility requirements are stricter than those of payday lenders or cash app services. However, some lenders are more likely to approve personal loans for bad credit than others.

Alternatives to a payday advance

Not too keen on a payday advance but need cash fast? Here are some other options:

• Personal loan: Many lenders offer same- or next-day funding, and you can find out within minutes if you prequalify. Via prequalification, you can see what APR you might get approved for and compare that to the APRs on your other options, like an online payday loan or cash app. Prequalification won’t hurt your credit, but your score may drop temporarily once you apply for a loan.
• Borrow from a loved one: Consider asking a friend or family member for a loan until your next paycheck. Get the agreement in writing, and make sure you can afford to pay the money back as agreed to.
• Credit card cash advance: Many credit card providers offer cash advances that enable you to withdraw a percentage of your credit limit from an ATM. While it’s best to pay cash advances off as soon as possible, you’ll only be required to make the minimum payment on your card each month. They often cost around 3% of the advance amount, are subject to a higher APR, and start accruing interest immediately.
• Payday alternative loans (PALs): Many credit unions offer short-term personal loans known as PALs. PALs range up to $2,000, can be repaid over 1 to 12 months, and can’t have interest rates over 28%. Some PALs are available to new members immediately after joining.
• “Buy now, pay later” (BNPL) services: If you’re making a retail purchase, consider using a BNPL service to split the cost up into payments over time. Many offer no-interest, six-week financing and don’t require a hard credit check.

Online payday advance FAQ

Do payday loans build credit?

Payday lenders don’t typically report positive payment activity to the consumer credit bureaus so most payday loans won’t help you build credit. That said, if you default on a payday loan and it ends up in collections, the collections agency will likely report the negative record to the credit bureaus which can hurt your credit.

What happens if you default on a payday loan?

If you don’t repay your payday loan as agreed, the lender will likely charge you late penalties and make multiple attempts to collect the amount from you. If those attempts fail, it may sell the debt to a collections agency or sue you. Upon receiving a civil judgment, the creditor may be able to take steps to recover the amount, such as garnishing your wages or seizing your property.

What is the best cash advance app?

The best cash advance app for you will depend on factors like the amount you want to advance and how fast you need the funds. Some of the most popular and highly rated options are Dave, EarnIn, Brigit, and MoneyLion. But take note of fees, such as subscription fees and expedited funds fees, as well as optional tips, as these can quickly increase the cost to borrow money, especially repeatedly.