There has been a rise in on-demand culture, with things like food arriving at your door within minutes and being able to watch an entire television series in one sitting becoming the norm. This on-demand culture is starting to make employees expect everything instantly and ask, why should my pay be any different?
Payday loans are one of many options that allow employees to access money before payday. Employees are relying on payday advances to help them cover unexpected costs before their usual payday. In this blog, we will discuss the pros and cons and the alternatives available to payday loans.
What is a payday loan?
A payday loan is a short-term loan allowing employees access to a small amount of money to help them get to their next payday. Payday loans are very accessible as you can find them from high street shops as well as online lenders. As the loan is designed to help you get to your next payday, lenders usually offer smaller amounts to borrow which can also come with high interest rates.
What are the benefits of a payday loan?
- Easy to access – There are lots of lenders available online and on the high street for payday loans. They also have fewer requirements than other loans which makes payday advances a lot more accessible than others available.
- Quick to access – the application process for a payday loan can be quite fast and straightforward. Then once approved the money goes straight into your account which is a huge benefit for employees who need a quick fix.
- Helps cover unexpected costs – payday loans usually only allow you to borrow small amounts at a time which makes them ideal to help cover unexpected costs that can’t wait till payday.
What are the disadvantages of a payday loan?
- Expensive – Whilst payday loans usually only allow you to borrow in small amounts, users run the risk of expensive bills with the risk of late fees and high interest rates.
- Risk of debt – With the hidden fees that go alongside payday loans it is very easy for users to get themselves into debt and make their financial problems worse.
- Short-term fix – Although payday loans can help employees who are struggling, it is only a short-term fix as the money usually has to be paid back by the end of the month. If employees are looking for longer-term solutions they would have to look into alternatives.
What are the alternatives to payday loans?
A personal loan is an alternative type of loan which offers a fixed-interest scheme. Unlike payday loans which are usually for short-term borrowing, personal loans are usually longer-term and can be taken out over a year. This also means you can borrow larger amounts but this can lead to higher interest rates and a risk of debt.
Credit cards give employees the ability to borrow money on a set limit agreed with the provider over the course of a month on a rolling basis. The agreed amount of money can be spent with the agreement that a percentage will be paid back by the end of each month. However, credit cards can be an easy way to get yourself into debt as interest rates are usually added if you don’t make payments quickly enough and don’t pay the full amount at the end of each month.
Earned Wage Access
Earned Wage Access is a system that allows employees to access their wages as soon as they have earned them. Flexible access to money allows employees to fund unexpected costs, pay bills as well as improve their wellbeing.
Employers can provide Earned Wage Access to their employees by signing up to an EWA provider which links through to their existing payroll system. Once linked, employees will then be able to log in to their account and view their earned wages and how much they can withdraw.
Earned Wage Access from Income Group is free for employees to use which allows the user to access and withdraw a percentage of their wages before payday.