Why you should avoid early salary applications
Every time I sit down for an hour or three of on-demand TV, I see advertisements for Earnin. In one of them, a wise older brother tells the person behind the camera that he needs to stop asking to borrow money and instead needs to get the Earnin app. “You can access the money you’ve earned at no charge or interest,” says the savvy guy. “You just tip what you think is right. “
But is it really that easy to get paid before your company’s designated payday? There must be some catch, something that proves this offer is too good to be true.
The basics of early salary applications
There are two types of early access to salary programs. The first is the one who works independently from your employer. You provide some details about your hourly job and connect your bank to get a short term loan.
Earnin allows you to withdraw up to $ 100 per day, but this maximum withdrawal may change overtime be as low as $ 50 and up to $ 500. Instead of charging a fee for the convenience, Earnin encourages, but does not charge, tipping for the service. He says contributions from the entire community keep the app running.
Then there is a larger group of services that require your employer to sign up to offer advances through a third-party app. Same allows employees to withdraw their income to their bank account or collect it at any Walmart store in the United States. It announces no hidden fees, loans, and interest, and provides budgeting tools to help users anticipate upcoming expenses. Walmart and the sister store Sam’s Club even offer employees, allowing you to access a portion of the salary you earned before payday up to eight times a year (there is a cost if you want to do it more than eight times). Then that money is deducted from your next paycheck.
PayActiv is another option: it doesn’t require a bank account for cash advances and even works with prepaid debit cards. During this time, SalaryFlex Enables early access to salary and faster access to tips and commissions via a Flex Pay debit card. The employer can choose how often you can dip into your earned wages. Daily salary charges $ 1.25 for each transfer of wages earned to your bank account; on payday you receive your full paycheck and all transfers are deducted from your account. ZayZgood also requires employer’s participation in providing advances that will automatically be debited from your next salary.
Some of these services call it a payday advance. Some tell you that you can choose your own payday. Some say you just get faster access to the money you’ve already earned. Very few of them use the word “loan”. But that’s essentially what they are.
The new personal loan?
“Just because you access it through an app doesn’t mean it’s not a loan,” Lauren Saunders, Associate Director of National Center for Consumer Law, noted. She describes early payday loans as balloon loans, which require you to pay them off in one installment.
Saunders explained that employer-approved early access programs are slightly less risky because they’re tied to your specific hours and pay schedule. A first-time salary app that simply syncs with your normal bank account activity, like Earnin, could backfire. “Occasionally [these apps] be wrong when they think your paycheck is coming. You could be affected by overdraft fees or insufficient fund charges, ”she said.
Despite the ease of use of these early compensation programs, they are far from foolproof. “It’s pretty common for people to go into the cycle of having to do this every pay period,” Saunders said. “You have this hole in your salary, but you also need this money. “
Then there is the matter of tips, like the ones that Earnin encourages. Winning is under investigation in 11 states because he was afraid of offering disguised payday loans, with corresponding interest rates. The The New York Post reported in March, Earnin suggests a tip of $ 9 for a $ 100 advance, which equates to an interest rate of 469% for a week-long loan. In States Where Payday Loans Are Legal, sometimes there is a cap on the amount of interest lenders can charge. In New York, for example, the interest rate cannot be higher than 25%. In California, lawmakers are pushing to cap early salary access fees at $ 14 per month.
Corn at federal level, advice makes all the difference. In its 2017 update of its payday loans to reign, the Consumer Financial Protection Bureau noted: “The Bureau has decided not to limit these no-cost advances to the employer-employee context only, as the very specific characteristics of their product structure make them an exclusion from the rule for them likely to ‘be beneficial to consumers across the spectrum. The next line provides a caveat: the CFPB may re-examine this status in the future if it finds otherwise.
Alternatives to early compensation programs
While early payroll access apps seem fresh, the concept of getting an advance on your paycheck isn’t new. I have heard stories of people who might ask their boss for a payday advance or a loan, although these stories are usually told by baby boomers.
Saunders said that a cash advance on a credit card could help close the pay gap, if you know you can pay off that advance right away. Other options include search small loans with credit unions or by checking if your bank offers overdraft lines of credit. The latter offers a relatively low interest rate on the amount you have discovered.
And, of course, there are these famous payday loans, although conventional wisdom (and whatever else you’ll read here at Lifehacker) says to avoid them at all costs. Much like Earnin’s ad campaign, traditional loan sharks don’t seem to be retiring anytime soon.
This post was updated on 08/14/2019 to correct ZayZoon’s refund period.