Recently, pay advance services seem to be everywhere you look. This type of service allows people to borrow a small amount, typically the full amount of their expected earnings. Similar to a payday loan, these are designed to help people make ends meet before their next payday. However, are they as predatory as the typical payday loan cycle?
It’s not always clear if you should use pay advance services. How do they compare to other types of payday loans, and are they really as great as they sound? Getting access to your money earlier sounds like a good thing, especially when you have bills to pay. That being said, it’s important to know exactly what you’re agreeing to when you decide to use pay advance services.
How Do Pay Advance Services Work?
Also known as payroll advance, these services let you borrow money against your paycheck. Most people are familiar with payday loans and their high fees, and pay advance services work similarly. Many modern services have rebranded with fancy apps and easy-to-use platforms that market this service to younger users. For example, the Earnin app has over 212k 5-star reviews on the Apple app store.
Essentially, these apps allow you to cash out your paycheck in advance. When you get paid, you pay back what you borrowed. In a perfect world, this would be done with minimal (or no) fees. When used on time and mindfully, pay advance services can be an effective way to get money quickly before your payday. That being said, if you’re late to make a payment, the risks can be steep.
When Might Pay Advance Be Needed?
First, when might you need to use a pay advance service? It’s all about solving the cash-flow crisis. With different debts and payments due throughout the month, it’s common for families to find themselves struggling to make ends meet before their next paycheck. Payroll advance is often used for:
- Emergency costs: If you find yourself unexpectedly needing to pay something (car repair, vet fees, etc.), a pay advance can help you avoid taking out other types of credit.
- Avoid overdraft: Similarly, people can avoid overdrafting their bank accounts if they need just a little bit of cash to get through to the next paycheck.
- Inconsistent pay/hours: Some people experience inconsistent pay/hours, resulting in a need for extra cash at certain times of the month.
Ultimately, this is a way to ease the day-to-day financial stress many people face in different professions. With most employers paying fortnightly or even monthly, this isn’t always practical for the way people really live.
What Are the Risks of Pay Advance Services?
That being said, pay advance services aren’t one-size-fits-all solutions. In fact, they’re not usually the best long-term solution to financial hardship at all. While they can provide temporary help, there are a lot of risk factors to consider:
- Eligibility: For apps like Earnin, there are strict eligibility requirements to qualify. If you work a gig job, for example, or you’re a contractor, you won’t qualify.
- Privacy: When you apply for a pay advance service, you sacrifice some of your privacy by linking your pay stub and bank account details.
- Late fees: If you’re unable to pay the service back on time, the fees can be steep. Though many of these services claim to not charge interest, that is only if you can pay on time.
- Limited withdraws: There are limits to how much cash you can withdraw into your bank account, and it’s not usually your full paycheck.
- Dependency: Finally, pay advance services lead users to get dependent on borrowing. Though this can be useful short term, it doesn’t address the real issue of budgeting.
If you constantly need to rely on pay advance services to make ends meet, this is a sign that you need to reevaluate your budget. You might be overspending on regular expenses, or you need to focus on increasing your income. If you have the capacity to build an emergency fund, this prevents you from needing to rely on pay advance services in the future.
Though there’s nothing wrong with these services, they shouldn’t be your go-to choice. In the future, more companies are expected to allow their employees access to payments faster, possibly even daily. The traditional paycheck model is slowly but surely becoming a thing of the past, and these apps prove just that.
Why Wait for Money You’ve Already Earned?
If you think about these pay advance services, they make a lot of sense. Why should you have to wait for money you’ve already earned through your job? The bi-monthly payday model is largely outdated, and it’s becoming more important than ever to consider where your money is going each month.
Still, just because pay advance services are available doesn’t mean they’re right for you. If you need help adjusting your monthly budget, talk with the experts at Debt Busters today on 1300 368 322. Our team of pros are here to help you every step of the way.