Neither is an ideal first choice for borrowing fast cash, but knowing their differences can help you save money and avoid damaging your finances.
If asked to picture a payday lender, you might think of a storefront in a strip mall with green dollar signs and neon slogans like “everyday’s payday.” You probably don’t picture a mobile app that advertises on TikTok and sports a colorful logo.
A single pay cycle is usually not enough time for borrowers to repay a payday loan, so many people fall into a pattern of getting another loan to pay the previous one, says Alex Horowitz, principal officer at The Pew Charitable Trusts. Apps may offer more flexibility Payday lenders and paycheck advance apps both collect repayment directly from your bank account. If your account balance is too low when they withdraw funds, you could incur an overdraft fee, says Yasmin Farahi, senior policy counsel at the Center for Responsible Lending.
Also unlike payday lenders, apps don’t make collection calls. If a user revokes access to their bank account to avoid repayment, the app won’t try to collect the funds. The user just can’t get another advance until they repay the previous one.Payday loans cost more Payday loans tend to have high, mandatory fees, while apps often don’t. Instead, they charge small fees that users can opt into throughout the borrowing process.
“If you get a payday loan for $200, you’re going to pay maybe three-something back,” she says. “With Earnin, I’m going to have to pay back that $200, plus whatever I decide to tip them. It’s way less expensive.”