For many Americans, cash advances are a stable way to ensure their bills are paid on time and (typically), the fees to borrow are lower than what a late bill charge would cost. With it being reported that nearly 50 million Americans use cash advance apps, the pockets of these founders look pretty profitable.
However, according to a study by Overdraft Apps, a site that helps consumers understand strategies and tools they can use to avoid costly overdraft fees, cash advance app fees are spiking through the roof. Specifically, the study found the average cost of borrowing from the 17 most popular cash advance apps has risen to $19.08, a 24% increase from April of this year.
The company claims the cost increase can be linked to charge increases by a number of well-known apps as well as the growing popularity of more expensive alternatives. These mobile applications have regularly been among the most downloaded in the finance sector, offering consumers instant access to additional dollars with no interest and no credit checks.
Fees vary significantly across the applications examined in the study, with the cost of borrowing $100 ranging from $6.00 to $34.99.
The study states Varo, Vola, Cleo, and B9 are among the most affordable apps, with each charging less than $10 in fees for a $100 loan. The average cost of a $50 advance is $14.07, while the average cost of a $200 advance is $26.95. Individuals in need of $500 advances will pay an average of $60.78 in fees and tips.
Mitchel Harad, the publisher of Overdraft Apps, said, “As more consumers grapple with rising costs due to inflation and a limited financial safety net, these apps continue to gain popularity. With a wide range of features, fees, and advance limits, a bit of research and comparison shopping can lead to significant savings.”
OverDraft Apps also states that all of these companies created business models that thrive off of different types of fees, rather than traditional interest. This typically revolves around express fees, monthly subscriptions, and optional tips.
For express fees, the majority of apps offer the convenience of delivering funds within minutes, albeit at the cost of optional fees ranging from $3.99 to $11.99 on a $100 advance. However, it’s worth noting that most apps also provide a more cost-effective alternative, transferring funds within a few days with no additional fee.
With monthly subscriptions, certain apps mandate a subscription to access their cash advance features, with subscription rates varying from as low as $1 to as high as $19.99 per month. The ability to access multiple advances per month from most apps can substantially reduce the effective cost of borrowing.
Eight of the 17 apps reviewed in the study encourage users to leave an optional tip when requesting a cash advance, often with a 15% pre-selected option. Tips can significantly inflate the cost of borrowing, with seven of these tip-requesting apps ranking as the highest-cost options.
The cost calculations for this 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 the maximum optional tip for apps that request tips.
