How Access to Earned Wages Beats Payday Loans, Payday Advances and BNPL – Hands Down
Imagine that your refrigerator breaks down and you have no savings. You need a new, stat. In some cases, you may need to consider using Buy Now Pay Later or even a payday loan. But that could land you in even more conflict with high interest charges or missed payments.
Instead, you may be able to use your own money to pay for this unexpected cost, by access your own earned salary.
It is now a reality with the Wagestream app, which gives employees instant access to up to 50% of their earned pay at any point in the payroll cycle, so they can cover any emergency or unexpected cost without having to borrow and pay interest or fees delay. It’s all about flexibility.
Here’s a quick breakdown of the difference between Payday Loans, BNPL, Payday Advances, and Earned Salary Access.
A non-solution: personal loans
Payday loans and their exorbitant fees should always be an absolute last choice.
On a $2,000 payday loan, the total repayments will be approximately $3,360 depending on Moneysmart. That’s a whopping $1,360 in interest and fees, even assuming the loan is repaid on time.
These huge repayments consist of set-up fees of up to 20% of the amount borrowed and monthly service fees of up to 4% of the amount borrowed. The lender isn’t even required to disclose these fees to borrowers in the form of an annualized interest rate, making it extremely difficult to compare products or figure out how much you’re being ripped off.
Payday loans sent hundreds of thousands of Australians spiraling into debt as they struggled to repay them, with 15% of borrowers having to borrow again to repay their first loan, according to Stop the debt trap alliance.
Defer the problem: BNPL
Then there’s BNPL, which often encourages overspending and doesn’t really solve employees’ financial difficulties. ASIC search found that one in five people using BNPL incur late fees that range from $5 to $15 and can be much higher for large purchases. These can add up and become a significant problem when people are managing multiple BNPL purchases.
Wolf in sheep’s clothing: pay an advance
A payday advance is a short-term loan that typically lets you borrow up to 25% of your previous paycheck for a fee.
It is sometimes confused with access to earned wages, but the two products are very different when it comes to helping people avoid debt and boost their financial well-being.
Pay advance providers typically charge 5% per withdrawal, which means if someone accesses $200, they will pay $10 in fees. So if someone needs to access money once a month, that equates to an effective annual interest rate of 60%, and if they access money fortnightly, the effective annual interest increases to 130%.
Importantly, and unlike access to earned wages, payday advance providers do not have a relationship with employers. This means they are unable to verify how much someone earns, when they worked, and what their employment status is. This can lead to all sorts of inaccuracies and complications, especially for shift workers.
True financial stability and well-being: access to earned wages
Compare these options to Earned Salary Access, which provides the ability to access money that has actually been earned, but has not yet been paid.
Earned pay access providers like Wagestream offer their products to employees through employers and know how much someone has earned because their app is connected to an employer’s payroll and time and attendance systems. For casual and shift workers on variable incomes, this is very important, as it removes any uncertainty.
And to add a little icing on the cake, many employers choose to offer this feature as a personal benefit to help support employees’ financial well-being. As a result, employers often subsidize part or even all of the cost on behalf of the employee, reducing or eliminating the cost to employees.
The advantage for employers? Providers like Wagestream have been proven to improve employee engagement, attraction, retention and well-being.
But more importantly, Wagestream addresses the underlying issues that can negatively impact financial well-being by also providing tools to help employees manage their money and improve their financial health by removing some of the barriers behaviors that can hold people back.
Tools include the ability to track real-time income, save directly on paychecks, get personalized financial coaching (live in-app via chat), and practical tips and tricks to help people to get the most out of their salary.
So if you need that new refrigerator, you know what to do. Do yourself a favor and avoid the temptation of the payday loan / BNPL / payday advance and ask your employer – where is my earned salary access option?
This article was developed in conjunction with Wagestream, a Stockhead advertiser at the time of publication.
This article does not constitute advice on financial products. You should consider obtaining independent advice before making any financial decisions.