Payday is still a few days away, but you need cash now to pay your bills. good news? There is an app.
Cash advance apps market themselves as useful tools if you’re cash-strapped. The bad news is that these platforms actually do more harm than good.
Here’s what you need to know about the paycheck advance app.
What is a cash advance application?
The Advance Paycheck Access app is a service that allows you to borrow paychecks. Most platforms allow you to deposit future earnings into your bank account.
Using these funds early can provide short-term financial relief or allow you to pay unexpected bills.
Popular apps include:
- Golden Lion
Everyone works differently, but all will lend you money before payday. Some apps, like Branch or Payactiv, require employer sponsorship but still work.
How does the cash advance app work?
An app that lends you money with your salary is too simplistic in how it works.
Here’s how cash advances work.
It’s not a difficult process and it can help you pay your bills if you need to quick cash.
Most apps let you get a short-term advance of $200 to $500. They also usually charge a few dollars.
However, many platforms require “hints” to use their services. Most of the time, these are optional.
Still, some apps, like Earnin, automatically tip by default. In Erning’s case, it’s $9. You can lower your tip, but it’s hard to do with most applications.
These tips and charges will be deducted from the total amount you receive.
Remember, you have to repay this money. If you do not repay the prepayment yourself, the repayment funds will be automatically withdrawn from your linked bank account.
What are the risks of Early Wage Access apps?
On the surface, getting paid early is largely harmless. It can help you pay your bills and deter creditors.
However, these applications are not without risks. Here are some questions to consider.
They are temporary solutions
It’s not uncommon to face financial emergencies, where having extra money can be very helpful. Many people face these situations, especially if they lack a steady income.
Unfortunately, a pay advance is often like putting a bandage on an open wound.
Regular visits to salary advances reveal a larger problem at play. You may not be earning enough, need to reduce spending, or both.
Rather than shame yourself, take action to fix the problem.
There are many ways to make more money.Or, if spending is the problem, try Cut your monthly bill.
Then, use those funds to help you stop living on a paycheck.
it can create a relentless cycle
There is no shame in needing a one-time cash advance. Many people have experienced this reality at some point.
But, like payday loans, using a cash advance app can create a never-ending cycle of borrowing.This makes it difficult get a budget Or pursue long-term goals.
To make matters worse, these apps tend to target those earning the minimum wage or people of color. This makes it harder for anyone in either category to build financial momentum.
Fees and Interest
Borrowing money is not without cost. Cash advance apps market themselves as an easy way to take advantage of the financial safety net.
Sadly, this is not the case. Most apps are riddled with small fees, membership fees, and tips that add up.
For example, taking out a $100 cash advance loan five days before your paycheck may incur a $5 fee.
It seems trivial, but New York Times The calculated annual percentage rate is 365%.
Fees will only increase if you take out multiple cash advances.
Those predatory rates are worse than what you’ll find with payday lenders. Worse, like BNPLwith minimum provisions.
Regulators are working on cash advance apps, and there may be some progress on this front. However, since they technically do not offer loans, there is little regulatory oversight.
you lose control
Losing control over your finances is scary. When you grant the payroll app access to your bank account, it can cause lingering issues.
When it is time to repay the money you borrowed, these platforms will draw the necessary funds from your account. This can lead to worse situations if you’re not careful.
it can lead to overdraft
The final problem with payroll access apps is that they can cause your bank account to go negative if you’re not ready.
These products require the advance payment they give you back. If this withdrawal occurs before you receive your paycheck, your account may not be maintained.
This may result in overdraft charges from your bank. Plus, if you habitually advance, you may incur multiple charges.
How does the Cash Advance app make money?
Getting a wage access product is big business. They like to tout themselves as an interest-free way to get early income.
However, the devil is in the details. These apps can make money in a number of ways, including:
- membership fee
- Subscription fee
- “Instant” access fee
The fees associated with cash advance applications add up to a lot of money. In fact, According to Consumer ReportsAmericans withdrew $9.5 billion in advances in 2020.
This is up from $3.2 billion in 2018. With so much money being demanded by cash-hungry people, there are plenty of opportunities for companies to profit from fees and tips.
Alternatives to a prepaid salary
Regular use of advance pay access apps represents a bigger problem. If that describes you, the situation is not hopeless.
There are many ways today to break this cycle and move toward long-term success.
Getting help is the first step you should take when facing financial distress. Maybe you need to earn more or spend less.
Now is the time to really take a look at your finances.MIT have a useful calculator You can use it to determine adequate income where you live.
Use it to determine what you need to do financially. As you look at your short-term needs, think about what you can do to get help.
Consider some of the following options:
- Contact your creditor and ask for a lower interest rate or delayed payment
- Ask your bank to waive overdraft fees
- Contact your utility provider to see if they can offer relief on your bill
- See if there are local organizations that can help
You can even get a short-term loan from your family if you don’t think it will hurt your relationship.
In short, use up your hard work so you can start getting back on track.
Increase your emergency fund
An emergency fund is the best tool to avoid a paycheck advance app.A sort of well stocked emergency savings The account should have three to six months of living expenses.
It will take time to get there, but it is crucial to start saving now. Do this even if you only save $20 a month.
Set a goal to save $100, then $250, then $1,000. Use it as a launchpad to save three months.
Starting small is the best way to gain the confidence you need to grow your emergency fund.
Find ways to save money in your everyday life and put those savings into a separate account.
Keeping your emergency fund in your own account prevents you from raiding it when you don’t need it.
CIT Bank is an excellent option to get started with as little as $100.
get a side hustle
If you can’t cut your expenses further, earning extra income is your next best option. First, ask for overtime in your day job.
If your boss refuses your request, sideline is your first choice. There are countless ways to make money.
Many opportunities require minimal skills, and some even pay weekly.
Delivery gigs like DoorDash are a great way to earn extra cash. You can choose your own schedule and get approval to start working in just a few days.
DoorDash drivers can get paid $23 an hour for deliveries. Even if it’s a short-term solution, extra cash can greatly increase your budget.
Get a low-interest loan
A personal loan should be the last resort for your cash needs. This is only an option if you have good credit and can avoid high interest loans.
Yes, this is taking on debt. However, if you can commit to stopping the cycle of taking down payments and you have no savings, then a personal loan is an acceptable solution.
here Here are some of the top companies to consider getting an unsecured loan.
You should only apply for a personal loan if you have no savings, exhausted all opportunities to increase your income, cut your expenses as much as possible, and have an interest rate below 10%.
Pay Advance apps market themselves as the solution to your funding needs. If you only use this type of app once and it doesn’t cause financial conflict, that’s fine.
However, it’s easy to turn a prepayment into a semi-regular occurrence. This leads you to borrow money from your future self and make ends meet in the present.
Finding short- and long-term solutions to your funding problems is a better option to get your finances back on track.
How do you manage your finances when you’re in a pinch and need quick money?
*Actual earnings may vary depending on factors such as number of deliveries completed, time of day, location and cost. Hourly wages are calculated using the average Dasher spend during the 90-day delivery period (from when you take your order to when you place it), including compensation from top wages, tips, and other incentives.