By Dawn Papandrea, US News & World Report featuring Vincent R. Birardi, CFP®, AIF®, Wealth Advisor at Halbert Hargrove
If you ever find yourself in a financial bind and need instant access to cash to cover an unexpected expense, there’s an app for that. Whether you call them loan apps, borrow-money apps, cash advance apps or payday advance apps, these online lenders can provide financial lifelines to people in a penny pinch.
They’re not ideal. There’s always a cost to borrowing money – even if that cost is just in the form of continuing bad financial habits – but loan apps might be useful in an emergency. Learn more about how loan apps work, the pros and cons, and our top picks for when you find yourself coming up short.
Are There Really Apps That Let You Borrow Money?
Different from online personal loans, loan apps are meant to offer a short-term solution for those in need of a quick money fix – and there are more of them popping up everyday. “There’s always been online financial stuff but this growth in online apps in lending has been remarkable,” said Michael Sullivan, personal financial consultant with Take Charge America, a nonprofit credit counseling and debt management agency.
How Do Loan Apps Work?
In general, loan apps work similarly to payday loans in that they offer borrowers an advance on their future income. Typically, you download the borrow money app, provide access to an external bank account that has direct deposit set up, and within minutes – or sometimes a few hours, depending on the app – you can request a sum of cash.
There is usually some sort of cost for this convenience. Depending on the loan app, you may pay a fee on the amount you borrow, and/or a monthly subscription fee to the lender. Once you take a cash advance, you will usually have to repay the money within a short time frame. This may happen automatically with the loan app taking the borrowed amount plus its fee from you on your next payday. Some apps may let you choose the repayment date.
