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Paycheque Advance App – Pros and Cons

Loan Advice
Paycheque Advance App

Payday advance apps can put money in your hands quickly, without the high interest rates or fees that accompany some types of loans such as payday advance loans. Before turning to a payday advance app, it’s important to understand how they work – and when you might be better off using a personal loan instead. 

According to a recent study just over half of Canadians live paycheque to paycheque, which can be a strain for your finances and make for a tight budget. But when emergencies or unexpected expenses occur, sometimes you just need quick cash.

How Payday Advance Apps Work

Payday advance apps allow you to take an advance against your paycheque. So it’s not a loan in the traditional sense; instead, you’re getting paid early for work that you’ve already done. 

At a glance, these apps look the same as payday advance loans since you’re borrowing against your paycheque. Once you get paid, you’d have to repay the advance to the app. But there’s one important difference: payday advance apps don’t charge high interest rates you might pay for a payday advance loan. 

That’s not the only way payday advance apps can work. Some apps allow you to get paid up to two days early when you enroll in direct deposit. Again, there are no interest charges or fees involved to get advance access to your paycheque. 

Bottom line, payday advance apps are designed to make it easier to get money you need, without accruing high interest debt. 

RELATED: How to Get a Loan With Bad Credit

Payday Advance App Pros and Cons

Payday advance apps have some attractive features but they’re not right for everyone. Before using a payday advance app to tap into your paycheque, weigh these pros and cons first. 

Pros:

  • Get an advance against your paycheque quickly and conveniently
  • Pay no interest to borrow from your paycheque
  • Access funds without a credit check
  • Tipping may be optional but not required

Cons:

  • Limited to borrowing small amounts (i.e. $100 a day, $500 per pay period, etc.)
  • Potential to overdraft your bank account
  • Can lead to a cycle of borrowing against your paycheques
  • Additional fees may apply

In a nutshell, cash advance apps can be a cheaper alternative to payday advance loans. Many apps charge no interest and you’re not obligated to tip if you truly can’t afford it. But some of the same pitfalls associated with payday advance loans, such as the potential to trigger overdraft fees or get stuck in a cycle of borrowing from future paycheques, still exist. 

Another downside to payday advance apps that isn’t always obvious to some is that since you are borrowing against your salary, you won’t receive a full paycheque. 

To be eligible for using payday advance apps, you must be employed, receive a regular paycheque, have an active chequing account, and be able to receive direct deposits. 

RELATED: Installment Loans vs Payday Loans – Which is Better?

When to Consider a Personal Loan or Installment Loan Instead

Paycheque advance apps can be helpful if you have a small temporary cash flow gap to cover. But again, you run the risk of overdrafting fees or constantly playing catch-up if you’re relying on these apps for regular cash infusions. Getting an installment loan or personal loan could make more sense if you don’t want to put an unnecessary strain on your paycheques. With a personal loan, you can borrow a lump sum of money and repay it over time according to a fixed schedule. 

Personal loans do charge interest but it can be easier to plan out a monthly budget around your payments versus trying to keep up with multiple payday advances. And if you have a larger expense to cover, such as a major car repair or a vet bill, you are likely to be able to borrow more with a personal loan than you would with a payday advance app. 

If you’re interested in getting a personal loan versus using a payday advance app, keep these tips in mind: 

  • Check your credit. Personal loan lenders can and will check your credit to determine whether to approve you and what interest rates to offer. So consider checking your credit reports and scores beforehand to know what kind of rates you might qualify for. 
  • Know what you can afford. Think about how much you need to borrow and how much you can afford to pay towards a personal loan each month. This can help with creating a realistic repayment budget. 
  • Compare lenders. Shop around for different personal loan options to find the right one. Compare loan limits, interest rates, fees and repayment terms to see how they align with your repayment budget.

The Bottom Line

Payday advance apps can make it easier to get funds on short notice and save money on interest. But a personal loan could be the better choice if you need more than just a few hundred dollars or you want to avoid getting into the habit of taking paycheque advances. Our recommendation would be to look at personal loans and installment loans, depending what you qualify for, when you find yourself in need of funds.

Financial Advice

If you have an interest in further insights that might help with your personal finances:

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These guides are created to help you with making informed choices about borrowing along with being more prepared to deal with budgeting, debt and personal finances.

Making sense of finance one day at a time.

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