by: Better Business Bureau
Do you need extra cash to tide you over until payday? Several apps are eager to provide this service by promoting themselves as an easy and interest-free way to get a small loan.
However, not all cash advance apps are created equal. Before signing up, do your research first and watch out for hidden fees and other pitfalls.
Consider the following tips before using a cash advance or payday loan application :
- Understand how cash advance loan applications work. TheCollegeInvestor.com defines cash advance loan apps as “apps that allow you to deposit money you’ve already earned into your checking account before payday.” Some cash advance apps work on the basis of wages earned by partnering with employers, while others work directly with consumers. After calculating your current income, the apps give you a small loan. The amount of your loan is then deducted from your next pay. Some apps require monthly subscription fees. Others charge a flat fee for loans or allow you to ‘tip’ voluntarily.
- Get to know the lender. If you decide to use an app to get a cash advance, find the finance company on BBB.org first. Make sure the company is known for its honest business practices. Besides, ConsumerFinance.gov recommends knowing if the lender is licensed by your state, which also means better protection for you.
- Read the terms carefully. Take your time to read the terms of the loan carefully. Make sure you understand when the loan is due and how much you’ll owe if you don’t pay on time.
- Find out about fees. Beware of cash advance apps that claim to be completely free. This means that there are usually hidden fees and costs, warns NextAdvisor. Fees may be disguised under other names – including “tips”, “donations”, “membership fees” or “premium account access”. Find out what you’re going to pay, and know that fees that seem small can add up over time. For example, nerd wallet points out that paying $2 to withdraw $20 for two weeks works out to an annual percentage rate of 260%. This is comparable to what traditional payday lenders charge.
- Be careful with your personal information. Most cash advance loan apps need access to your banking information to work. Make sure the company’s website and connections are secure and read their data privacy policies before sharing your information.
- Never pay upfront fees. If a lender asks you to pay a fee before giving you money, don’t agree. Charging consumers an undisclosed upfront fee is illegal and a scam sign.
- Budget accordingly. Always remember that having quick access to your money with a cash advance loan means your next paycheck will be smaller. While this type of loan can be helpful if you find yourself in a bit of a financial emergency before payday, you’ll need to plan ahead to make ends meet on your next pay period.
- Keep your documentation. BBB has received reports from consumers receive calls from collection agencies years after paying off a payday loan. Some calls were the result of human error, but others were attempts to defraud consumers. Protect yourself by keeping documentation showing that your loans have been repaid in full.
- Consider alternatives to a loan. Cash advances can get very expensive, especially if you miss your repayment date. Consumer.gov recommends considering other ways to borrow money, including using your credit card, asking family or friends for a loan, or inquiring about a loan from your bank or credit union. If you need a loan because you can’t pay one of your regular bills, try calling the company and asking for help. For example, many lenders and creditors are helping borrowers affected by COVID-19 by offering deferral of mortgages or credit card debt.
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