A recent study conducted by Overdraft Apps has shed light on a concerning trend in the world of cash advance apps. According to the research, consumers have been hit with significantly higher costs when using these popular financial tools over the past six months. The study reveals that the average cost of borrowing from the 17 most widely used cash advance apps has risen to $19.08, marking a staggering 24% increase compared to April of this year.
This spike in costs can be attributed to fee hikes by several well-known apps and the growing popularity of newer, pricier alternatives. These mobile apps have consistently ranked among the most downloaded in the finance category, offering consumers instant access to extra cash with no interest and no credit checks.
Among the apps analyzed in the study, fees vary widely, with the cost to borrow $100 ranging from $6.00 to $34.99. The analysis highlights Varo, Vola, Cleo, and B9 as the low-cost champions, as each of these apps charges less than $10 in fees to borrow $100.
For borrowers seeking $50, the average cost is $14.07, while $200 advances come with an average cost of $26.95. Meanwhile, those in need of $500 advances will face an average expense of $60.78 in fees and tips.
Intriguingly, none of the apps covered in this study charge interest, and most don’t impose late fees. Instead, they rely on various fees to generate revenue:
- Express Fees: Most apps offer the convenience of delivering funds within minutes, charging optional fees ranging from $3.99 to $11.99 on a $100 advance. However, most apps provide a cost-effective alternative, transferring money within a few days with no additional fee.
- Monthly Subscription: Some apps require a subscription to access cash advance features, with rates varying from $1 to $19.99 per month. The ability to access more than one advance per month from most apps can significantly reduce the effective cost of borrowing.
- Optional Tips: Eight of the 17 apps encourage users to leave an optional tip when requesting a cash advance, often with a 15% pre-selected option. Tips can significantly increase the cost of borrowing, with seven of the apps requesting tips ranking as the highest cost options. Nevertheless, each of these apps clearly states in its terms of service that tipping does not impact borrowing limits. Consumers can save by contributing a small tip or none at all.
Mitchel Harad, the publisher of Overdraft Apps, emphasizes the importance of informed decision-making: “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.”
Understanding the fee structures of these apps can help consumers achieve substantial savings. For instance, accessing $100 from Dave ExtraCash™, which carries a 5% express fee to send funds to an external bank account and a 15% optional tip, costs $20. However, choosing to instantly access funds via a Dave Spending Account and leaving no tip can reduce the cost to just $3 – lower than any other provider. (Dave also charges a $1 monthly subscription fee.)
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.