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What is a paycheck advance and how it works
If you’re living paycheck to paycheck — like many Americans — what happens when you need money for an unexpected expense? If you aren’t able to make it to your next paycheck, then you may be able to get a paycheck cash advance.
Paycheck advance companies are available online and through your employer or direct through an online banking product. They’re great alternatives to payday loans, credit card cash advances and borrowing from friends. Here’s an overview of the basics of what a paycheck cash advance is, how it works, and the pros and cons of using the service.
What is a paycheck cash advance?
A payday advance is just what it sounds like, a small advance on your paycheck. Technically it’s not a loan, and the app doesn’t charge you interest. It’s money you’ve already earned but don’t have access to until payday. The maker of the apps makes money in other ways like asking for tips, charging you a monthly subscription or transaction fee.
It’d be great if most paydays were once a week. Having a constant flow of cash would make budgeting easier. Since most paydays are two weeks apart and sometimes only once a month, staying on a budget takes discipline. And even the most careful spender will have the occasional emergency come up and find themselves in dire need of cash.
How does a paycheck advance app work?
There are two types of paycheck advance apps. One is an employer partnering with a cash advance app company as a benefit for its employees, and the other type is an independent company, usually one with banking or other financial services.
To find out if your employer offers paycheck advances through an app, just ask them. Some employers pay for the app and/or extra perks for the employees and allow you to advance as much as 50% of your paycheck.
In addition, sign-up is typically faster because they can quickly verify your income, length of employment, and even attendance. Even if your employer has partnered with a paycheck advance app, you may feel more comfortable using an app not associated with them for privacy’s sake.
2. Banking or financial service-based
Unlike a traditional payday advance company, these modern fin-tech apps (financial technology apps) require direct-deposit from your employer. They also typically require that you sign up for their other banking products such as checking, savings, debit/credit cards, and/or online investing.
Pros and cons of using a paycheck advance app
- Can help avoid NSF or late fees
- Early access to your own money.
- The price of use is typically straightforward.
- Get you to your next payday without using a credit card.
- Some apps report to credit bureaus so they can help build up your credit score.
- No interest, no hidden fees and easy to budget.
- Approved amounts are generally quite small and may not give you that much coverage.
- Less money in your next paycheck.
- Some people report becoming dependent on the app or getting stuck in a use-loop that is difficult to break.
- There is still a fee — a subscription, tip, or transaction fee to pay and, depending on the amount you advance, it could equate to a high rate.
Steps to sign up to the paycheck advance app:
1. Sign up
Through your employer or directly through the financial service provider by downloading the app.
2. Gather and provide your vital information
Such as driver’s license number, address, email, social security, bank account information, etc. The app will require direct connection with your bank account.
3. Read the terms and conditions to understand
How you will be charged, limitations of advance amount, time to get cash, and other requirements. For example, many apps will advance you money within 2-3 days but charge you extra for same day/rush transfers.
4. Confirm your identity and link your bank account
Most apps require direct deposit set up with your bank, or directly with your employer to deposit funds to a debit card.
5. Get approved
Many of the banking-based apps require a certain level of banking activity, income, and credit in order to advance full amounts advertised — even if they advertise no credit check. Employer-based apps tend to be more flexible.
6. Submit for your cash advance and get approved
Per the steps and terms of the agreement, once you’ve submitted your cash request you’ll receive a quick notification confirming your advance or giving you a reason for denial.
7. Get your money
This will show up in your bank account and/or your debit card if it’s tied to the account. Some apps may require you to have an account with them. If that is the case, they will deposit the funds there.
Our top paycheck advance apps
Best banking or financial service-based cash advance apps:
Varo is an online banking service that gives you fast, fee-based cash advances when you sign up for direct deposit. Their app enables you to borrow up to $100 up to 2 days early. Varo accounts include automatic savings tools, interest checking, debit cards, and more.
With a Chime online banking account and direct deposit, you get access to your pay the minute your employer deposits it. Most banks make you wait 2-3 days after the deposit to make sure the check clears. Like Varo, Chime has loads of other banking perks to help you manage money.
Brigit advertises up to $250 in cash advances, but you must qualify and meet their minimum scoring requirements based on income, banking activity and more. In addition, the service charges $9.99 a month for access to its banking and cash advance features.
Dave cash advances are more like overdraft protection. It notifies you if you are at risk of overdrawing your account and gives you the option to request an advance of up to $500 from your paycheck. In addition to an online checking account, Dave also reports rent to help you build credit and offers a side-hustle service.
MoneyLion’s Instacash feature allows you to borrow up to $250, assuming you meet income and banking activity requirements. MoneyLion’s pricing is a bit confusing with the highest tier charging $19.99 per month but then discounted based on your activity and use. In addition it’s bundled with a number of other services, including free checking, managed investing, credit monitoring, and more.
This online bank gives you access to your paycheck 2 days early with direct deposit. Just like Chime and Varo, you gain access to it the same day your employer deposits it.
With direct deposit, Earnin allows you to advance up to $500 of your per pay. They do not charge a fee but ask for a “tip” each time with a suggested minimum of 4%. In addition, you have access to other banking features such as balance shield for overdrafts, cash-back rewards and even HealthAid for medical bill payment set up.
Klover offers instant cash advances of up to $100 with no credit checks or interest charged. They claim you can have access to cash in a matter of minutes. Like Brigit, you must meet basic qualifications, including bank activity (e.g., three direct deposits within the last 90 days averaging at least $250).
Best employer-based paycheck cash advance apps:
This app allows you to have early access to your pay to help with paying bills on time or avoiding late fees. They offer you the freedom to choose where you get the money, a debit card, bank account, prepaid card or pay card. They also offer financial tips to help you meet your financial goals.
This is a bare-bones wage transfer app only. Although offered as an employee benefits app — you may still get charged a $3 fee for small advance amounts such as $20.
Available for only select employers, this app offers budgeting tools as well as cash advances. It also allows you to track your earnings in real-time and syncs that up with how much you could potentially receive as an advance. Even also offers savings features.
Branch offers a number of early pay features and formats for employers to pay employees, gig workers, and contractors instantly, including instant tips, mileage reimbursement, debit cards, and a portion of wages ahead of time.
What is the difference between a paycheck advance app and a payday loan company?
|Payday cash advance||Payday loan|
|Interest and fees||$0 interest, Monthly or transaction fee||30-300%+ depending on state regulations|
|Time to repay||Until your next paycheck. Rollovers are not allowed.||~2 weeks or longer with rollover fees|
|Collection||Repaid through your paycheck. Companies cannot go after you or file a lawsuit.||Debt collection efforts|
Ask yourself this before you decide to try a paycheck advance app
1. Is my need a short stop-gap?
Remember, at the end of the month, you still have the same amount of cash to cover all your expenses, even if you got a bit of it earlier. If you have a cash need that extends beyond the month or find yourself dependent on the early cash, then you are better at finding an alternative solution.
2. Do I need more money than a payday advance app will lend?
When you find yourself needing more cash than a hundred dollars a few days early, it’s time to explore other options. You may need to consider taking out a personal loan. The benefits of a personal loan include:
- Lower interest rates.
- You can consolidate higher-interest credit card debt on them, which will save you interest AND cut down on how many minimum payments you have to make to multiple accounts
- Personal loan payments are reported to credit bureaus, which means they can help increase your credit score.
3. Is there a better alternative for me to a paycheck cash advance
Here are a few other options to picking up $50-$200 quickly:
- Save hundreds of dollars a month by getting a roommate.
- Pick up a side hustle to make extra money.
- Cut out the ‘fat’ from your spending ($5 lattes 3 times a week adds up to $60 a month, which is $720 a year! Yikes!!).
- Consider selling off something you no longer need or use.
- Work out a payment plan. You might be surprised at the number of businesses that offer financing and payment plans and will cost you way less money than any of these other options! Say you have a flat tire – companies like Discount Tire have plans to help you out financially. Always ask a company if they have a payment plan – the very worst they can say is no.
- Borrow money from a friend or relative. This can be an uncomfortable conversation. However, if you know someone who has offered to help you in the past or you think is in a stable financial situation that may be able to float you a couple of hundred dollars ― you can save yourself a lot of money.
Without an emergency fund, a small hiccup in cash flow can cause financial problems. Paycheck advance apps are an alternative to borrowing from others. They help you stretch funds between paychecks which can make life a bit more manageable. Just remember: Getting access to money early means you will have less money in your next paycheck.
Paycheck cash advance FAQs
1. How does a paycheck advance app compare to a regular cash advance?
Paycheck advance apps don’t charge interest or use traditional collection practices. They make their money off a transaction fee or monthly subscription. A cash advance is typically a small-dollar loan with a high-interest rate and penalties, late fees, and aggressive collection tactics if you don’t pay your loan back on time.
2. How does a credit card cash advance compare to a paycheck advance?
The typical cash advance fee is a minimum of $5-$10 and a percent fee ranging from 2-8%. Most banks charge a higher APR on cash advances too, you start accruing interest on it immediately and it compounds daily. Calculate and compare the fee for the amount compared to the tip/subscription or transaction fee of the wage access. If you are lucky, your employer’s paycheck advance app may not charge a fee at all.
3. What’s the most I can get from a payday cash advance app?
Most apps advance $20-$100, going up to $500 depending on your income and banking activity. Some employer based apps will advance up to 50% of your paycheck assuming consistency in your length of employment, income and banking activity.
4. What’s the downside of a paycheck advance app?
The downside is it’s a relatively small amount of money advanced to you only a few days early. It’s meant to be a stop-gap to cover a quick expense or avoid a late fee. It doesn’t stretch your income anymore for the month. Some people report getting trapped in a cycle of early advances, becoming dependent on the app.
5. Do payday cash advance apps require credit checks?
Most don’t require a credit check to grant you cash advances, but they do require you to have consistent cash flow as measured by your income and banking activity.
6. What do I need to get a payday advance?
Most app companies require you to sign up for an account with them, have direct deposit with your employer, a steady source of income. and consistent banking activity in the same bank account for 2+ months.
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