Payday Loans Disguised in Apps?

New apps offer payday loan-like services, but with a twist

Jonathan Raines needed money, so he downloaded an app that promised to “advance” his paycheck. He borrowed $100 and tipped the app $9, promising to repay the loan on his next payday.

But nine months later, Raines is still using the app, and he says he’s now trapped in a cycle of debt. He borrows about $400 each pay cycle, and the app lowers his borrowing limit whenever it detects that he might not be able to repay.

Raines’s story is not unique. A new class of online lending apps is offering payday loan-like services, but with a few twists. These apps, such as Earnin, Dave, and MoneyLion, do not charge interest or fees. Instead, they ask users to “tip” them.

These apps argue that they are not payday lenders because they do not charge interest. However, experts say that these apps offer a new set of tricks and terms that are designed to give the appearance of safety and modernity.

How these apps work

These apps work by monitoring users’ bank accounts and spending patterns. They also ask users to share other personal information, such as their time sheets and location.

When a user needs money, they can request an advance from the app. The app will then deposit the money into the user’s bank account. The user must repay the advance on their next payday.

If the user does not repay the advance, the app will not charge interest. However, the app may lower the user’s borrowing limit or even suspend their account.

The risks of these apps

While these apps may seem like a convenient way to get quick cash, there are a few risks to consider.

First, these apps can be addictive. It’s easy to get into a cycle of borrowing and repaying, and it can be difficult to get out.

Second, these apps can collect a lot of personal data about their users. This data could be used for targeted advertising or even sold to other companies.

Third, these apps are not regulated like traditional payday lenders. This means that users may not have the same protections if they have problems with their loans.

What to do if you need money

If you need money, there are a few things you can do before downloading one of these apps.

First, try to see if you can borrow money from a friend or family member. You can also try to get a loan from a bank or credit union.

If you can’t get a loan from a traditional lender, there are a few nonprofit organizations that offer zero-interest loans. You can also try to defer utility payments or seek credit counseling.

If you do decide to use one of these apps, be sure to read the terms of service carefully and understand the risks involved.