Are Payday Advance Services Worth It?

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Several companies have rolled out new services that allow workers to access their paycheques earlier.

In a time when the economy is booming and yet 46% of American adults still say they cannot cover a $ 400 emergency, it is clear that many Americans are living paycheck to paycheck. In the past, when money was tight and credit cards were depleted, people could turn to payday lenders and pawn shops for quick access to cash, often paying outrageous fees. in the process.

Today, several companies have rolled out new services that allow workers to access their paychecks earlier through mobile banking apps to make ends meet. These services can provide much needed relief to cash strapped workers. But we wanted to take a closer look at what they have to offer and whether or not they’re the best option for quick cash.

In late 2017, Walmart announced a new partnership with two Silicon Valley start-ups to give 1.4 million workers access to financial planning tools.

The first app that Walmart employees can access right now is called Even, which like apps like Instant and To win, allows users to be paid earlier for hours worked.

With Instant, you connect the application with a card given to you by your employer. Once verified, you can receive your daily tips and wages, deposited directly into your Instant account, which you can use to check your balance, use ATMs, view wages, and even transfer money to another bank account. The only fees are an easy to avoid 90-day inactivity fee.

Likewise, Earnin provides access to up to $ 100 per day of your earned wages and operates on a tip basis with no fees or interest. You simply connect your banking and business information, then you can choose how much from your paycheck to deposit into your bank account, and that amount is debited when payday arrives.

In Walmart’s deal with Even, workers can use Even’s “instapay” option to receive a free portion of the wages they earned before the scheduled paycheck (during the typical pay period of two weeks) up to eight times a year. If your employer doesn’t cover the cost of the app, it’s $ 2.99 per month after a 60-day free trial, and if you subscribe to Even Plus, additional fees depend on what your employer covers for. you. Walmart employees’ monthly costs are covered by the company, and they can claim advances on hours they have already worked before the end of the two-week pay period.

Walmart is certainly one of the biggest retailers to announce such an offer, but it’s not the first. Instant has customers in the United States and Canada, including McDonald’s, Outback Steakhouse and Dunkin ‘Donuts, according to a spokesperson for the company.

José Alcoff, director of the Stop the Debt Trap coalition at Americans for Financial Reform, says there are many paycheck loan and advance programs offered by employers across the country, many of them offering the service without interest. While this is a nice gesture for workers who live on paychecks, it is not a lasting solution to chronic financial insecurity, he warns.

“A payday advance program may or may not be a responsible lending solution, but it is not a solution to poverty and the kind of financial crisis that many working poor people experience on a daily basis,” Alcoff said.

A way to avoid payday loans and overdraft fees

A payday advance program can be a good alternative to more expensive options like payday loans or title loans that offer low loan amounts. Small loans are often the best option to help manage financial discrepancies or unforeseen expenses, says Dennis Shaul, CEO of the Community Financial Services Association of America, a Virginia-based organization that represents non-bank lenders and service providers.

Payday loans from a store, bank or website are presented as two-week lump sum products, but in reality they have unaffordable lump sum repayment requirements, according to The Pew Charitable Trust. “Payday Loans in America” series.

According to Pew, 12 million American adults used payday loans in 2010, with the average borrower taking eight loans of $ 375 each and spending $ 520 in interest. The borrower is actually in debt for five months a year.

What is troubling about payday loans is that for a product that can become a debt trap so quickly, people typically use them to cover their daily expenses.

According to Pew, 69% of borrowers use their payday loans for everyday expenses like food, utilities and rent, and 16% for unforeseen car and medical expenses.

Payday advance companies seek to help their employees avoid paying interest on payday loans.

Other benefits for employees who have access to payroll advance apps include tools to help budget and plan for paying bills in advance, which can help people avoid late fees and delays. overdrafts on their bank account. Employees, especially in occupations like the restaurant business where wages vary by season and shift, would also know in real time how much money they need to spend.

The Risks of Using a Payday Advance Program

While it might seem like the easiest way to deal with your financial stress, getting a cash advance could potentially put you in a cycle of debt if you’re not careful.

“Most borrowing involves multiple renewals after a first loan, rather than multiple separate borrowing episodes separated by more than 14 days,” according to the Consumer Financial Protection Bureau.

While this refers to payday loans, the same principle applies to payday advances. Some companies offer access to a payday advance program at no additional cost, but once you exceed the base benefit, you may have to pay additional costs (such as the $ 3 subscription per pay period to Even Plus).

Alcoff says a living wage and comprehensive benefits that allow workers to live with dignity is the only solution to the financial problems of many low-income workers.

“The more workers are stuck in paying off loans and debt trap loans, the more difficult it is for them emotionally and their health and abilities to make ends meet for their children,” he said, “and the more it comes down to haunt employers, who are often the ones who see lower productivity and more stress at work. ”

Anyone interested in their employer’s payday advance programs should read the fine print. For example, check if you are giving up access to your bank account at your employer.

“Don’t take it for granted that your business has your best interests at heart,” Alcoff said.

EnlargeSilver is a price comparison and financial education site founded by former bankers who use their knowledge of how the system works to help you save money.

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