Cash advance apps vs. payday loans
Payday loan amounts are typically larger, but cash advance apps offer fast funding at a way lower cost.
Need an influx of cash and can’t wait for your paycheque to land in your account? It happens. Two options are cash advance apps and payday loans. You can typically get bigger loan amounts with payday loans, but it’ll cost you. Cash advance apps are much cheaper, but you may pay a fee if you need money right away.
Cash advance apps vs. payday loans
| Feature | Cash advance apps | Payday loans |
|---|---|---|
| Cost | No interest, but you may pay a monthly fee | $14 for every $100 borrowed |
| Amount | $20–$750 | $100–$1,500 |
| Term | Next pay cycle or flexible | Up to $1,500 days |
| Basic eligibility | Recurring income, bank account, good banking history | Recurring income, bank account |
| Credit check? | No, there’s no credit check | A soft credit check may be required (does not impact your credit score) |
| Collateral? | No, this loan is unsecured | No, this loan is unsecured |
| Speed | Instant decisions and funding | Instant decisions and funding |
| Application process | Easy—apply online or download the app, get an instant decision and get instant funding | Easy—apply online or in-store, get an instant decision and instant funding |
| Pros |
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| Cons |
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| Guaranteed approval? | No, but requirements are very lenient | No, but requirements are very lenient |
| Avoid if | You need large amounts or don’t want to pay a monthly fee | There are alternatives or you’re not sure the lender is legit |
| Learn more | Cash advance apps | Payday loans |
What is a cash advance app?
A cash advance app lets users access a portion of their earned wages before their regular payday, often with no interest and low or no fees.
Once you have the app, enter basic details and link your bank account. After the provider verifies your information and deems you eligible (not a given), you can request an advance and have the money transferred.
In most cases, cash advances require an active chequing account with direct deposit enabled. If you don’t have direct deposit, you may not get a loan. Apps like KOHO allow cash advances without direct deposit. But you’ll need to meet other requirements.
Borrowing limits vary by lender, but most max out at around $750. You may have to pay express transfer fees, a monthly subscription or membership fees that can range from $2 - $12 or more.
What are the risks of cash advance apps?
A cash advance app typically doesn’t charge interest or late fees. However, if you can’t afford to wait a few days for the funds to transfer for free, you will be charged an instant transfer fee, which varies by lender.
Fees can add up quickly if getting cash advances becomes a habit. So, between the advance itself, fast transfer fees, and any subscription fees, these no-interest loans can add up and potentially lead to a cycle of debt.
What is a payday loan?
A payday loan is another way to get an advance on your paycheque, but the costs are significantly higher than with cash advance apps. For example, payday loan providers typically charge both interest and late fees. But lenders also don’t require credit checks, and loan amounts can be higher than with cash advance apps—up to $1,500.
Payday lenders calculate interest by charging a flat fee per $100 borrowed. According to the Financial Consumer Agency of Canada (FCAC), lenders may charge $14 for every $100 borrowed. That may not seem like a lot, but it nearly equates to a whopping 365% APR for a two-week loan.
Loan proceeds are typically deposited directly into your chequing account, but depending on the lender and your circumstances, you may receive the funds in cash. The loan is typically fully repaid on your next payday by having it automatically deducted from your bank account.
What are the risks of payday loans?
The primary risk of a payday loan is the cycle of debt. Payday lenders require you to repay by your next payday. Once you do, you have less income left over to pay for other debts and living expenses. If you don’t have enough money to get you through your next payday, you might be forced to take out another payday loan, and the cycle continues.
Other risks include applying to an illegitimate lender, late payment and NSF fees if you don’t repay, and getting denied by other kinds of lenders, such as banks or alternative lenders, if they see you have an active payday loan.
Cash advance apps vs. payday loans
Cash advance apps and payday loans serve very similar functions, but there are some key differences.
The similarities
- Short-term loans tied to paydays. Both lending options lend small sums to borrowers, and most commonly expect to be repaid out of the next paycheque.
- No credit checks. Both payday lenders and cash advance apps usually don’t check credit scores. Lenders also don’t report to credit bureaus if you make late payments or default on the loan.
- Small loan amounts. You can usually only borrow amounts in the hundreds with short-term loans. For larger loan amounts, you’ll need to turn to a personal loan or line of credit.
- Risk of debt cycle. Borrowing against your next paycheque by either method can become a habit that may be difficult to break.
The differences
- Size of loans. Neither cash advance apps nor payday lenders offer large loans. However, some apps only let you borrow very small amounts at first (like $20), where first-time borrowers can usually get more from a payday loan.
- Cash advance apps are cheaper. Even though some apps may charge monthly membership fees or fees for expedited transfers, these are generally much less expensive than payday loans.
- Funding time. If you apply for a payday loan online, you may not get the money until the next day. If you’re approved for cash advance app services, you could get funds in minutes (an instant transfer fee may apply).
Which is better for borrowing money?
If you’re in a bind and only need a small loan, a cash advance app is the better way to go. Yes, you may have to pay a fee to get the money instantly, and some apps have monthly subscription fees, but cash advances are overall cheaper payday loans.
On the other hand, if your cash advance app only approves a loan for a few hundred dollars and you need more, you may need to seek out a payday lender instead. But be prepared for high fees. Either way, neither option should be considered a long-term lending solution.
Compare cash advance apps
Compare these cash advance apps in Canada, paying special attention to membership fees and expedited transfer costs.
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How we picked these
Finder Score for cash advances
To make comparing even easier, we came up with the Finder Score. Interest rates, fees and features across 5+ cash advance providers are all weighted and scaled to produce a score out of 10. The higher the score the better the loan—simple.
Alternatives to cash advance apps and payday loans
Cash advance apps may only approve very small loan amounts—especially for newer users—and payday loans are so expensive that it’s worth exploring other options.
- Credit card cash advance. While not ideal due to high interest rates, you could get a cash advance from your credit card through a bank or ATM without an approval process or waiting period.
- Personal loan. Depending on your creditworthiness and financial situation, you could borrow anywhere from $500 to $50,000 with a personal loan. This type of funding is harder to qualify for than a payday loan, but rates are lower and you’ll have longer to repay what you borrow.
- Auto title loan. Using your car as collateral to secure a loan could bump up your chance of approval and land you a lower interest rate than you’d get with an unsecured loan. But your car must be fully paid off and meet the lender’s age and condition requirements.
- Borrow from friends and family. If possible, a loan from a parent, sibling or friend could tide you over until you get your next paycheque.
- Get a side job. Rather than taking on more debt, it’s better to increase your income. Learn more about the different ways to make money online.
Bottom line
Payday loans and cash advance apps are two popular options for obtaining a small loan between pay periods. Cash advance apps basically came about as a less expensive answer to predatory lending and are fast and convenient, if not totally “free.”
You may have to pay to get money instantly, and some apps may also require a monthly membership fee. But sometimes, the loan amounts are so low that, in an emergency, you might have to go with a traditional payday loan or other alternative.
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