5 On Your Side

Billions borrowed through paycheck advance apps

When money is tight, a paycheck advance app can help - for a cost.

Posted Updated

By
Monica Laliberte
, WRAL executive producer/5 On Your Side reporter
RALEIGH, N.C. — When money is tight, a paycheck advance app can help – for a cost.

Terry Patterson downloaded MoneyLion last summer when he needed to make a last-minute trip to see his dad.

He got a $50 advance on his next paycheck.

“When I was able to get that done, I had enough money to at least cover one of the, you know, some gas along the way [and] a couple snacks," said Patterson.

The apps let users request a portion of their next paycheck. There’s usually a fee or subscription cost, which can run between $1 and $10.

On payday, the app is paid back by a bank account debit, or the money is taken directly from your paycheck.

The industry is exploding.

In 2018. there were almost 19 million paycheck advances, totaling $3.2 billion. Last year, there were almost 56 million advances, totaling $9.5 billion.

“These services can be great to help you out of a jam once and awhile. But you have to really be careful not to make it a regular habit," says Octavio Blanco, with Consumer Reports.

Research shows users tend to take out regular advances, and many get caught in a cycle of borrowing.

Those who find themselves short on the bills each month need to regroup their finances, Consumer Reports says.

In the meantime, Consumer Reports says, people might be better off to try a short-term loan from a bank or credit union.

Interest rates can be as high as 36 percent. But a loan that you pay back on time, can help build your credit.

MoneyLion tells Consumer Reports its app helps its members pay bills and avoid overdraft fees and gives them greater control over their finances.

As with everything else, there are benefits and drawbacks. Users just need to pay attention.

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