As Users Flock To Cash Advance Apps, Fees Jump Higher

New research reveals that the fees to borrow from cash advance apps have become much more expensive to consumers over the past six months. The study, conducted by the website Overdraft Apps, shows that the cost of using the most popular money borrowing apps now averages $19.08, a 24% jump in costs since the site benchmarked costs in April of this year.

This uptick stems from fee increases by several widely used apps and the rising popularity of newer, pricier apps. These mobile apps consistently rank among the most downloaded in the finance category, providing instant access to extra cash with no interest and no credit check.

Fees vary widely amongst the apps, with the cost to borrow $100 ranging from $6.00 to $34.99. Varo, Vola, Cleo, and B9 ranked as the lowest cost alternatives, with each charging less than $10 in fees to borrow $100.

Mitchel Harad, publisher of Overdraft Apps, underscores the importance of careful research: “As more consumers struggle with higher costs due to inflation and little financial safety net, these apps continue to grow in popularity. With such a wide range of features, fees and advance limits, a bit of research and comparison shopping can lead to significant savings.”

Cost calculations for the study are based on public pricing information as of October 13, 2023. The analysis assumes one advance per monthly subscription fee, express delivery fee to an external bank account, and the lower of 15% or maximum optional tip for apps that request tips.

What are cash advance apps?

Cash advance apps have exploded in popularity over the past half dozen years, with most offering access to up to several hundred dollars in cash in less than ten minutes. There are 17 apps offering cash advances or earned wage access that are currently at the top of the most downloaded apps charts for the finance category in the App Store and Google Play. Dave, Earnin and MoneyLion each boast over ten million downloads.

Most providers offer up to $250 or $500 in short term cash advances, though the borrowing limit for new customers is generally lower, and can be as little as $5 - $10 with some apps. Establishing a track record of on-time repayments of advances is key to accessing higher limits.

These apps don’t conduct credit checks, making them a popular way for people with a poor credit score or no credit history to access credit. Instead, they connect to the user’s bank account via the widely-used Plaid platform to analyze account history and activity, such as the age of the account, average balance and amount and frequency of deposits.

When users need to access extra cash, they can often have it sent to their bank account or a debit card issued by the app provider within a few minutes, though an express fee often applies for this convenience. The apps automatically process repayment of the amount borrowed plus any associated fees and tips for when they expect the customer to receive their next regularly recurring deposit, such as a paycheck, gig work earnings or government benefit payments.

Since these apps don’t charge interest and most don’t penalize users with late fees, users can extend the time they have to repay without incurring additional cost, though their ability to borrow may be temporarily reduced or suspended if repayment stretches beyond a week or two.

Navigating Cash Advance App Fees

None of the apps in this study charge interest, and most don’t charge late fees. Instead, these apps charge one or more fees:

Express Fees: Most apps can send funds to your bank account or a debit card tied to the app in just a few minutes, charging a $3.99 - $11.99 optional fee on a $100 advance for the convenience of instant access. The majority of these apps also offer a no-cost alternative, transferring money within a few business days without the express fee.

Monthly Subscription: Some apps require a monthly subscription to use cash advance features, with rates ranging from $1 to $19.99 per month. Most apps allow customers to borrow multiple times per month, so customers who regularly use cash advances will realize a lower effective cost per advance.

Optional Tips: About half of the apps ask users to leave an optional tip when they request a cash advance. 15% is often the recommended or pre-selected amount. Tips can significantly increase the cost of borrowing, with the seven highest cost providers in the Overdraft Apps study all requesting them. However, each of these apps states that tipping does not impact current or future borrowing limits.

Understanding the various fee options is key to unlocking potential savings for consumers. Consider this: Borrowing $100 via a Dave ExtraCash™ with an express fee for transfer to an external bank account and a 15% suggested tip amounts to $19. Yet, accessing funds through Dave’s debit card without adding a tip reduces the cost to just $3 — the most competitive rate among the providers surveyed. Keep in mind, Dave also charges a $1 monthly subscription fee.

“Fast cash is tempting, but take a beat to shop around,” Harad cautioned. “Nearly every app touts no hidden fees, but as this study shows, the costs can vary quite widely and unfortunately most cash advance apps don’t clearly present their fees upfront. A little bit of research could help regular users of these apps save hundreds of dollars a year in fees and costs.”

To that end, Harad also noted that earlier this week the Federal Trade Commission announced an $18 million settlement with the maker of Brigit, one of the most popular cash advance apps, for deceptive advertising and fees. (Brigit denied the allegations, while agreeing to the settlement.)

Not a loan

Payday loans have been one of the largest sources of small, short term loans for consumers with poor credit, but a reputation for sky-high rates has soured many on them. Meanwhile, regulations from the Consumer Finance Protection Bureau, the Department of Defense, and many state regulators have significantly reduced their availability.

Cash advance apps have filled the void, offering convenient access to extra cash without the predatory lending practices. However, these apps have treaded carefully to not be ensnared by these same (and potentially new) regulations by structuring their lending products to avoid the definition of a loan.

If the fees are considered the cost of borrowing, the annual percentage rate for borrowing from many cash advance apps quickly reaches three figures. For example, the $19.08 average cost of borrowing $100 from the Overdraft Apps study would equate to a 696.42% annual percentage rate (APR) if everything is repaid after ten days.

However, since these apps don’t provide loans, they aren’t required to disclose their APR. (Advocates for short term lending products - especially the lenders themselves - often argue that APR is a highly misleading metric for their products and that the cost of using their products is reasonable, especially given the high-risk nature of their customer base.)

There is no interest charged on these advances and the fees are carefully tied to optional add-ons, such as tips or express delivery, or are collected as subscription fees for using the apps, which generally include additional features for budgeting, investing, or credit score monitoring. Moreover, several apps provide clear instructions on how users can access a cash advance with no fees, including emailing to request that subscription fees be waived.

These apps further separate themselves from being classified as loans providing funds on a nonrecourse basis, meaning that they waive any legal or contractual claim to getting repaid and, in most cases, won’t work with collection agencies or report non-payment to credit bureaus. (Borrowers who don’t repay are often suspended or banned from these platforms, though.)

As a spokesperson for Dave previously told ABC News:

“​​Dave is not a payday lender, quite the opposite. The company was founded to end the need for payday loans or overdraft fees altogether. We provide small dollar advances and members can access this service entirely for free. We don't believe that anyone should have to bear the cost of an expensive loan just to get gas and groceries, which is why Dave built its advance service to be free (tips are optional). Because Dave does not charge interest, has no late fees, does not check or hurt credit nor send anything to collections, the regulations that properly govern the payday loan business are not applicable in Dave’s situation.”

Disclaimer: The above is a sponsored post, the views expressed are those of the sponsor/author and do not represent the stand and views of Outlook Editorial.