Cash advance apps: What you need to know

Life doesn't always align with your payday. When an emergency strikes, or you just need a little extra cushion to cover an unexpected expense, a cash advance app can be a powerful tool. However, while these are a short-term solution for things like an emergency car repair or a surprise medical bill, they’re not intended for ongoing cash flow problems. In this guide, we'll explain how direct-to-consumer cash advance apps work, the ideal times to use them, and when it might be time to consider other options.

How do cash advance apps work? (a step-by-step guide)

Cash advance apps (like Varo Advance¹) are a type of direct-to-consumer lending, meaning they work directly with consumers without a middleman. While there are a few different apps on the market, most of them work in a similar way:

• Link your bank account: You'll connect your existing bank account to the app. This allows the app to verify your income and deposit history. This protects against fraud and proves you're a real person.

• Eligibility is verified: Based on your bank account health, the app will get an idea of your financial reliability to ensure they are lending sensibly. This is not a credit check.

• Advance is issued: If approved, you can get an instant loan, or the loan will be issued within 24 hours. Either way, it's very quick.

• Repayment is managed: The advance is usually issued against an upcoming direct deposit. Many apps have an option for automatic repayment, which can be handy if you're the forgetful type. Some even offer bonuses for users who repay their loans on time.

Understanding the costs of cash advance apps

The way cash advance apps make money varies between providers, and it's important to understand the costs before you apply.

Flat fees & interest

Some apps charge a flat fee for the advance, while others charge an interest rate. It's crucial to compare providers. While some short-term loan companies are known to have high Annual Percentage Rates (APR), some up to nearly 36%², many modern cash advance apps avoid interest entirely and instead focus on transparent, flat fees.

Subscription fees

Some services have monthly subscription fees just to access their features, and instant delivery of funds is often an additional charge.

Optional tips

Many apps apply optional tips to their cash advances in place of a standard interest rate. These are voluntary, but the apps will add them as standard, so keep a sharp eye out and reduce them to zero if you don't want to pay a tip.

If you're unable to repay the loan on time, you may be charged additional fees. If you default, your debt may be sold to a collection agency.

Varo Advance does it differently, with no interest, no subscription fees, and no tips requested. Instead, you can borrow between $20-$250 on the first day of becoming a customer (after linking a qualifying account¹) for one flat, transparent fee.

Pros and cons of cash advance apps

There are both pros and cons to using cash advance apps. Here's a look at some of the key benefits and drawbacks to keep in mind:

Pros

• Get cash fast in case of an emergency.

• No credit check required.

• Some apps offer introductory bonuses like a free one-off advance.

• Automatic repayment can help you stay on track.

Cons

• Fees and costs of some apps can really add up.

• Not a long-term solution to financial problems.

• May be difficult to repay the loan if you have ongoing cash flow problems.

• Over-reliance can lead to a cycle of debt.

Who can qualify for using a cash advance app?

While cash advance apps do not run a credit check, they will still verify your financial health to ensure they’re lending responsibly. Most apps require a history of direct deposits and signs that you actively use the account (this helps protect them from fraud and proves you're a real person). They will also look at your overall bank account health, including your ability to maintain a positive balance and repay previous advances on time.

How cash advances impact your credit score

A common question is whether using a cash advance app will affect your credit score. It's important to note that most cash advance apps (including Varo Advance) typically don't run a credit check and don't report repayment history to the major credit bureaus. This means that while applying for the service won't negatively impact your score, making on-time repayments also won't help with building credit. However, this feature can be a benefit for those with low or no credit history who are concerned about a credit check on their report. Just be aware that if you default on the loan, the debt could be sold to a collections agency—depending on the cash advance app—which could eventually hurt your credit.

Read more: Getting an online cash advance with bad credit

Alternatives to cash advance apps

While cash advance apps can be a helpful way to get cash quickly, it’s not the only option available to you. Here are a few alternatives to consider if you're still not sure a cash advance is right for you:

• Build an emergency fund: The best way to be prepared for unexpected expenses is to have money set aside ahead of time. Putting your money into a high-yield savings account is a great way to build up an emergency fund.

• Ask your employer: Some companies offer direct paycheck advances or short-term loans to established employees. If offered by your employer, this can help you avoid cash advances altogether.

• Personal loan: A personal loan from a bank or credit union can be a better option for larger financial needs. Varo Bank provides customers with cash advances directly, so they don’t need to turn to separate cash advance apps.

• Credit card cash advance: While these can be very expensive, they are another option for quick cash if you have a credit card.

Ultimately, the best alternative is to have a long-term plan. If you find yourself relying on cash advances often, consider reaching out to a free financial advice service or creating a budget to get back on track.

Key takeaways

Cash advance apps are best used as a quick, stop-gap solution for unexpected expenses. When you find yourself in that situation, it's smart to choose a transparent tool that won't become a financial crutch. Varo Advance¹ is designed to be that solution. With no interest, no subscription fees, and no tips requested, you can get $20-$250 instantly for a single flat fee per advance. Just sign up for Varo and link a qualifying external account. You'll know the exact cost to expect upfront, with no surprises.

Get started today by opening a Varo Bank Account or click to learn more about Varo Advance!

1. Varo Advance (VA) is a small dollar line of credit. Initial limits range from $20-$250. Fees range from $1.60 - $40 based on loan amount, and deposits to your Varo Bank Account. No interest is charged. For full details see Terms and Conditions. Your current limit and applicable fees can be viewed in the Varo App. Only one outstanding advance at a time, must be repaid in full prior to requesting a new advance. Limits and eligibility evaluated daily and may change at any time. You must have an active Varo Bank Account with a positive balance, no delinquent VLOC or charged off Believe account in prior 6 months and one of the following: 1) receive Qualifying Direct Deposits (QDD) of $800+ to your Varo Bank Account current or previous calendar month (max line size $500). 2) A linked account with QDD of $800+ in the current or prior calendar month, average daily balance of $100 in the previous 30 days and active for at least 60 days (max line size $250) or 3) receive deposits of $800+ to your Varo Account in the previous 3 months (max line size $100). Add’l qualifications may apply.

Qualifying direct deposits are electronic deposits of your paycheck, pension or government benefits (such as Social Security or unemployment) from your employer or government agency to the extent that can be identified. Tax refunds and government stimulus payments, Person-to-Person payments (such as Venmo or Varo to Anyone), and funds deposited using a Varo routing number are not considered a direct deposit.

2. According to lender reviews from Bankrate.