More workers can now use pay advance apps for quick cash to cover expenses between paychecks. The apps may offer no-cost options, but most users end up paying fees that can total hundreds of dollars a year, a new analysis finds.
“They are not free in the vast majority of cases,” said Candice Wang, a senior researcher at the Center for Responsible Lending, a nonprofit consumer advocacy group, and a co-author of a report published on Friday on the real cost of pay advance apps.
Pay advance apps, also known as “earned wage access” or “on-demand pay” tools, let workers get part of their earnings early to tide them over until their full paycheck arrives. Most borrowers earn less than $50,000 a year, a 2023 government report found. Workers can use the funds for any purpose, whether a car repair or basics like groceries. A 2024 case study of restaurant workers found that the most common reasons for taking an advance were food and rent.
“People are struggling, and it’s hard to make it paycheck to paycheck,” said Lauren Saunders, a senior lawyer at the National Consumer Law Center.
The report estimated that nationally, 96 percent of advances to workers using direct-to-consumer versions of the apps included fees or “tips,” costing borrowers more than $200 a year, or about $17 a month, on average.
At a time when many Americans are struggling with the high cost of living, any added amount “is a burden,” said Whitney Barkley-Denney, the responsible lending center’s deputy director of state policy and senior policy counsel.
What are pay advance apps?
Most employees get biweekly or monthly paychecks, but their bills don’t necessarily arrive on the same schedule. A bevy of financial technology companies aim to fill that gap, promoting digital pay advance tools as accessible, convenient alternatives to costly storefront payday loans or high-rate credit cards. The amount of the pay advance is deducted from the worker’s bank account — or paycheck, depending on the service — on the next payday.
The apps emerged more than a decade ago but took off during the Covid-19 pandemic and have continued to gain in popularity. Some companies team up with employer payroll systems while others use an independent, direct-to-consumer approach, typically analyzing a worker’s bank account to calculate eligibility for an advance.
“Millions of Americans live paycheck to paycheck, and earned wage access provides a critical tool for managing affordability challenges between pay periods,” the Financial Technology Association, whose members include pay advance companies, said in testimony submitted to the House Committee on Financial Services in January.
Unlike credit cards, the loans require no credit checks and don’t formally charge interest, which adds to their appeal. But they do charge fees for speedy cash delivery and ostensibly voluntary “tips” that add to the cost for most borrowers, leading to high effective interest rates, the report found.
The new analysis found that the average cost of an advance via a direct-to-consumer app was about $6.50 to borrow $113 for nine days. Costs include fees paid for quicker access to the funds, app subscription or membership fees, and “tips” from borrowers.
That calculates to an annual percentage rate of about 232 percent on an average loan, researchers said, far exceeding double-digit rates on high-interest credit cards for people with poor credit, and approaching rates on loans offered by traditional payday lenders.
The researchers also analyzed data by state and found that in all 50 states and the District of Columbia, average advance rates were in the triple digits — even in the roughly two dozen states that set much lower interest rate caps, such as 36 percent, on short-term loans.
That suggests some states could be more assertive in regulating pay advance apps, Ms. Barkley-Denney said. “We want to see states enforcing their rate caps.”
The analysis used a large data set of anonymous bank transactions, which researchers winnowed to a sample of about 347,000 borrowers who used 11 direct-to-consumer apps and eight employer-based tools from September 2024 through August 2025. (Researchers said they could not identify fees or calculate costs for services provided through employers because the repayment of advances and fee payments typically occurred via payroll deduction and were not visible in bank data.)
National averages were calculated using a sample of about 10,000 borrowers across all states, proportional to each state’s population.
The pay advance industry objected to calculating annual percentage rates. “Forcing a flat, transparent fee into an annual rate distorts the cost and actually misleads consumers rather than informing them,” said Phil Goldfeder, chief executive of the American Fintech Council, whose members include pay advance companies.
Do the apps always charge for advances?
No. The apps typically offer a free option, but using it can mean waiting a few days to get the money. Instead, workers can, and usually do, pay a fee to get the cash right away, Dr. Wang said.
“They may have a free option,” she said, “but that’s not the one consumers use.”
Ms. Barkley-Denney said that’s not surprising, given that workers typically need advances when they are in a pinch.
Borrowers took out 33 loans a year on average — two or three a month — while 42 percent were for less than $100, based on data for both employer and independent apps.
Officials at Exodus Lending in Minnesota, a nonprofit that refinances high-interest loans, said the group had been helping more clients struggling to repay app advances. This year, it has already helped 14 borrowers pay off 38 advances, compared with one or two annually a few years back.
Anne Leland, Exodus’s executive director, said “resourceful” consumers might take a pay advance to keep the lights on at home. But then, “there’s not much left of their paycheck,” so they need another advance. “It’s a cycle they can’t get out of.”
How can I use pay advance apps safely?
Workers often take advances with multiple apps, said Meghan Olsen Biebighauser, Exodus’s policy and partnerships director. “Almost everyone is using two or more at the same time,” she added. Sticking to just one can reduce the risk of becoming overextended.
Also, Ms. Leland said, consumers can explore lower-rate small consumer loans offered by some traditional banks, like U.S. Bank. Approval times are often quick, and the funds are deposited into your account at the bank.
Some credit unions may offer payday alternative loans to their members, she said.
Ms. Saunders said pay advances from employer-based tools were less likely to cause unexpected overdrafts in your bank account. Because employers have access to your actual payroll information, debits for repayments won’t be mistimed, which may happen with stand-alone apps. Also, she said, the workplace tools “don’t ask for tips.”
Are digital pay advances considered loans?
The payment apps argue that the advances are not true loans, in part because they are based on wages the employee has already earned and because they are “non-recourse.” The apps can deny further advances if a worker stops payment, but they do not send the debt to collection or sue borrowers, according to the Financial Technology Association.
Earned wage access “is different from a loan,” the association said in its testimony to the House Financial Services Committee.
An industry-supported measure to set special federal rules for the apps has been introduced in Congress. The legislation would require, among other things, that the apps offer a no-fee option and reimburse consumers for any overdraft fees caused by a provider error.
But consumer advocates say the bill, if enacted, would exempt pay advance companies from federal truth-in-lending laws, which require lenders to detail a loan’s costs, and would blunt similar state regulations.
Ms. Saunders said the measure “is trying to say a loan is not a loan.” Yet more than a dozen state courts, she said, have found that pay advances are indeed loans.
The bill awaits scheduling for consideration by the full House. It’s unclear if or when that will happen.
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