Consumer reports: Prepayment apps can save you money, but don’t overdo it

CONSUMER REPORTS – Terry Patterson was due to make one last trip to see his dad last summer. The only problem was that he didn’t have enough money.

So Terry downloaded a paycheck advance app on his phone and took a $50 advance on his next paycheck.

“When I was able to do that, I had enough money to cover at least one of the…you know, some gas along the way, some snacks,” Patterson said.

Paycheck advance apps allow you to request a portion of your next paycheck before payday, usually for a fee or subscription cost of between $1 and $10. Then, on payday, the advance is collected by debiting the money from your bank account or directly from your paycheck.

Sounds easy enough, but be careful not to overdo it.

“These services can be great for helping you get out of a mess once in a while. But you really have to be careful not to make it a regular habit. If you end up using these services regularly, the fees you pay can add up,” said Octavio Blanco of Consumer Reports.

Research has shown that people who use these apps tend to take advances regularly, which means they sometimes end up in a vicious circle of borrowing. So if you can’t afford to pay the bills every month, consider looking for a bank or credit union that offers small dollar short-term loan services.

“The APR on these loans usually doesn’t exceed 36%, and they can also help you build your credit,” Blanco said.

As for Patterson, he found using a payday advance app very helpful but wouldn’t make it a regular habit.

Cash advance situations can always have high credit issues and you want to be very financially responsible when considering any of these types of things,” Patterson added.

Darcy J. Skinner