How access to earned wages outperforms payday loans, advance payments and BNPL – hands down
Imagine your fridge breaks and you have no savings. You need a new one, stat. In some cases, you may need to consider using Buy Now, Pay Later, or even a Payday Loan. However, this could result in you getting into even more arguments with high interest charges or payment defaults.
Instead, you may actually be able to pay for those unexpected expenses with your own money Access to your own earned wages.
This is now a reality with the Wagestream app, which gives employees instant access to up to 50 percent of their earned wages at any point in the pay cycle, allowing them to cover emergencies or unexpected expenses without having to borrow money and pay interest on late fees. It’s all about flexibility.
Here is a quick breakdown of the difference between payday loans, BNPL, wage advances and access to earned wages.
A non-solution: payday loans
Payday loans and their exorbitant fees should always be the absolute last choice.
For a $2,000 payday loan, total repayments are approximately $3,360, according to Moneysmart. That’s a whopping $1,360 in interest and fees, assuming the loan is repaid on time at all.
These massive repayments are made up of a setup fee of up to 20% of the amount borrowed and a monthly service fee of up to 4% of the amount borrowed. The lender isn’t even required to disclose these fees to borrowers as an annualized interest rate, making it incredibly difficult to compare products or understand how much you’re being fleeced.
Payday loans have created a debt spiral for hundreds of thousands of Australians who have struggled to pay them back, with 15% of borrowers having to re-borrow to pay off their first loan, according to the Stop the Debt Trap Alliance.
Postpone the problem: BNPL
Then there’s BNPL, which often encourages overspending and doesn’t really solve employees’ financial problems. Research by ASIC found that one in five people using BNPL experience late fees, which start between $5 and $15 and can be much higher for larger purchases. These can add up and become a significant problem when people are managing multiple BNPL purchases.
Wolf in Sheep’s Clothing: prepayment
A paycheck is a short-term loan that typically allows you to borrow up to 25% of your previous paycheck for a fee.
It’s sometimes confused as being similar to Access Earned Wage, but the two products are very different when it comes to helping people avoid debt and build their financial well-being.
Pay advance providers typically charge 5% per withdrawal, which means someone accessing $200 will pay $10 in fees. So if someone is supposed to access money once a month, that equates to an APR of 60%, and if they access money every two weeks, the APR increases to a whopping 130%.
Crucially, unlike wage earners, wage advance providers have no relationship with employers. That means they can’t check 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 Wellbeing: Access to a Deserved Wage
Let’s compare these options to Access Earned Wage, which provides the ability to access money actually earned but yet to be paid.
Earned wages 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 tracking systems. For casual and variable-income shift workers, this is so important because it removes any uncertainty.
And as a nice cherry on top, many employers choose to offer this feature as an employee perk to support employee financial well-being. As a result, employers often subsidize some or even all of the costs on the employee’s behalf, reducing or eliminating costs to employees.
The benefit for employers? Providers like Wagestream have been shown to improve employee engagement, attractiveness, retention and well-being.
But more importantly, Wagestream actually addresses the underlying issues that can negatively impact financial well-being by also providing tools to help employees grapple with their money and improve their financial fitness by addressing some of the Behavioral barriers that can hold people back are broken down.
Tools include the ability to track earnings in real-time, save right from checkout, get personalized financial coaching (live in app via chat), and actionable tips and tricks to help people get the most out of their checkout.
So if you need that new fridge, you know what to do. Do yourself a favor and avoid the temptation of the payday loan / BNPL / advance payment and ask your employer – where is my wage entry option?
This item was developed in partnership with Wagestream, a Stockhead advertiser at the time of publication.
This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.