Earned wage advances (EWA) and cash advance products are small, short-term loans that are typically repaid on the consumer’s next payday either directly from a bank account or as a payroll deduction. Consumers access these products using an app on their smartphone by linking their bank accounts or by enrolling through their employer. The costs of these very short-term loans are not always transparent to consumers, who often pay fees and leave tips to access money and run the risk of unexpected overdraft fees. Workers who are already living paycheck to paycheck may frequently find themselves pulled into a cycle of reborrowing that depletes their net earnings and further erodes their financial stability.

Through a mixed-methods approach, this research aims to better understand the costs and risks of using EWA and cash advances as well as their impacts on the financial lives of low- and moderate-income consumers.

Key Findings

  1. Overdrafts on consumers’ checking accounts increased 56% on average after use of an advance product.
  2. Consumers are taking out advances repeatedly, and using multiple lenders is common. Three quarters (75%) took out at least one advance on the same day or day after making a repayment.
  3. Consumers taking out small amounts of cash paid a high price. The average APR for an advance repaid in 7 to 14 days was 367%, nearly as much as the APR on a typical payday loan (400%).
  4. Many low- to moderate-income consumers are already struggling to meet their expenses and repaying advances makes it harder to catch up or save.