Should you use a Paycheck Advance app? | Smart change: personal finance
Some advances are accompanied by additional fees. Dave, another paycheck advance app, has three optional fees: a $ 1 monthly subscription, an express fee to get your money faster, and a tip.
For a few hundred dollars – the maximum amount you can borrow from most apps – the fees aren’t as high as most payday loans or overdraft fees.
But asking the user to decide how much to pay doesn’t give them the ability to assess the total cost of the loan like an annual percentage rate would, says Marisabel Torres, California policy director at the Center for Responsible. Lending.
“Not calling it a fee and presenting it as a tip is actually dishonest for the user, because then it is confusing how much this product is actually costing you,” she says.
The risks: overdrafts, chronic borrowing
To sign up for a paycheck advance app, users normally need to provide proof of their payroll schedule and income, and often access their bank accounts so that the app can withdraw the money. ‘they owe when they get paid.
Some apps say they will monitor your bank account and try to avoid a debit if your balance is too low. Debiting a balance that’s too low can result in overdraft fees – a fee that some apps sell as an alternative – and you might need to borrow again.