Is getting a small loan through a smartphone app a new phenomenon? The answer is yes. Most small loan and cash advance apps have only been around for less than 10 years.
For example, the popular cash advance app Dave was started in 2017, and shortly after, Shark Tank star Mark Cuban invested $3 million into the banking service startup.
Now there are several small loan apps that can easily be accessed through your smartphone or online. While these companies and applications are relatively new, the services they provide are not.
The service these apps offer is very similar to a payday loan or a cash advance loan. These are small loans that are meant to be repaid once the borrower receives their next paycheck. These types of loans usually don’t require a good credit score, and you’ll only need income and a checking account in order to qualify. These loans usually come with very high-interest rates and fees and are generally cautioned against for borrowers who may not be able to quickly pay back the loan.
Smartphone apps that offer small loans, however, are a much safer option than a payday loan. Many of the popular applications don’t charge any interest but may request that you pay a subscription fee, a tip, or another small fee in order to use their service.
As mentioned, the Dave app is one of the more popular small loan apps on the market today. Much like a payday loan, the Dave app lets you borrow a small amount of money with the expectation that you’ll repay the loan once you receive your next paycheck. It also can monitor your checking account to protect you from an overdraft.
Dave app users usually receive up to $100 but can receive up to $200 dollars if they elect to have a Dave spending account. Dave does not charge interest on their loans. Instead, they rely on a few fees that they market as optional. There is a $1 monthly subscription fee and you can tip up to 20% of the borrowed amount. The tip is optional, but Dave says it is the tips that allow them to continue providing their service to others. You can also pay a fee to receive your cash faster, upgrading the delivery time to eight hours instead of the usual three days.
Earnin fashions itself as a paycheck advance app. The Earnin app is also a popular choice among small loan apps. It is among the older applications on the market, having launched in 2014. It tracks the hours that you work, using a timesheet or geographic data to log how long you’ve been at work. This allows users to access wages they’ve earned but have yet to be paid for. It also offers an overdraft protection service.
Earnin users can access $100 to $500 dollars in funds and charge no interest on their loans. Much like the Dave app, Earnin asks you for a voluntary tip of up to $14 and offers overdraft protection for a recurring monthly tip of $1.50.
MoneyLion asks for an optional tip, and they also charge an express fee in order to get your money sooner. MoneyLion offers “instacash” advance service ranging from $25 and up to $250 if you elect to open a MoneyLion checking account.
There is also the budgeting app Brigit. Brigit also offers up to $250 dollars in a cash advance loan but is among the more expensive options. They charge a $9.99 monthly subscription fee to utilize their service. One of the advantages of Brigit is a much faster delivery time. If you make your request before 10 a.m. ET, they can usually deliver your funds that day or the next day.
Most of the apps do not require a credit check in order to qualify, usually only requiring proof of income and a checking account. As you’ve seen, many of these apps do charge interest or fees characteristic of predatory payday loans. Instead, they rely on subscription fees, express delivery fees, and tips to make money. Therefore, many of these apps are good options if you need quick cash in a pinch before you receive your next paycheck.
Chime launched in 2013 and offers various fee-free banking services, including checking and savings accounts. Chime is another option with similar advantages to Dave and Earnin. Their “SpotMe” product offers customers the opportunity to overdraw on their accounts up to a certain amount without incurring an overdraft fee. Customers can overdraw up to $200 based on their account activity. Once the overdraft limit is hit, the account will decline any additional purchases without incurring any fees. Chime charges no interest, also asking that you tip their service. The advantage of the SpotMe product is that is instantaneous. It is already built into your account once you set it up.
However, most of the apps offer very small loan amounts, with the higher end usually being around $500. If you are in the market for a bigger amount, you should look into a personal loan from apps that can offer them – like Avant, Varo, or Oportun – or through banks and other traditional financial services, most of which offer online services and smartphone apps.
With all this in mind, it’s important to remember to only utilize these small loan services if you are really in need of them. Getting a cash advance on your upcoming paycheck now means less money coming in your next paycheck. It’s always best to build up an emergency fund and withdraw from it when you come upon a surprise or emergency expense. But if you find yourself in dire need of some money to stretch between paydays, these small loans are a viable and legitimate option to use. Make sure to compare these options to find the most suitable option for you and your situation.