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Should I Get a Pay Advance?

Nov 17, 2021 | Insights

Summary

Getting an advance on your pay seems to have become the latest trend, with companies like Before Pay making it much easier to access. How does it work? Providers, like Before Pay, generally advance part of your pay before your pay day by deducting it from your pay, plus a fixed percentage transaction fee.

What to look out for?

  • Fixed percentage transaction fees, even if they are only 5%, can add up if you advance a large portion of your pay.
  • It can become easy to fall into the habit of relying on Pay Advances, but this can impact your budget and leave you short for bills and loan repayments.
  • Having too many Pay Advances could reflect poorly on you as a borrower, indicating a lack of financial control to potential lenders.
  • With easy access to fast cash, you can end up spending more than you can afford on things you don’t need.

Tips to help you increase your chances of getting a loan

    • Use free budget applications to keep track of your daily expenses.
    • Try to avoid buying things that you do not need. Before you buy, ask yourself “do I really need this?”
    • Try and only use Before Pay and similar options as little as possible and only as an emergency option if you absolutely need to.
    • Consider setting up a separate bank account for all your monthly direct debit expenses, that always has extra funds in it, to ensure that no direct debits or repayments are missed.

Sometimes, payday seems way too far away. If you’re short on cash and can’t wait for your wages to hit your pocket, a pay advance might be worth considering.

 

What are pay on demand apps?

We live in the age of technology where accessing money is as simple as downloading an app on your phone. Pay on demand apps can give you early access to a maximum of 25% (generally with a limit of $1,250) of your next expected salary payment — so you don’t have to wait for payday.

This service is a short-term loan, and with loans come fees, charges and interest expenses. Many pay on demand providers offer a flat fee of usually less than $10, with some charging up to a 5% fee of the cash advance.

 

Technology to help you make it through until payday

Because pay on demand is designed to tide you over until your next payday, the repayment date for the advance is usually your next scheduled payday. If you do not repay the money by this date, you’ll likely be hit with additional fees or interest charges.

If you’re a fan of Buy Now Pay Later (BNPL), you’ve probably noticed that you can’t pay all your everyday expenses that way. An pay advance could be a convenient way to fund expenses that BNPL can’t cover. And with no credit checks required (generally), it can be a simpler way for people with bad credit history to access money.

 

What pay on demand services are available in Australia?

Pay on demand services are made up of three main categories:

On-demand payroll
Have you ever used the excuse “I can’t catch up this weekend, I’ve got no money until payday”? Employer offered on-demand payroll services mean that excuse is a thing of the past. With on-demand payroll, your employer can offer the pay on demand service, which a third-party app payroll provider then facilitates.
With this service, the employee can choose to access their wages before their payday. However, there is usually still a two day wait for the cash to clear, so it might not be instant money. Your employer usually pays for the payroll features on a subscription basis, so the advance can be available for employees to use for a cost-effective flat rate.

Bank account services
Your bank or credit union might offer a wage advance service through your mobile banking platform. An advance from your bank is usually processed instantly, so there’s no need to wait for funds to clear in your account. You must repay the advance by a specified date to avoid additional fees or interest being charged on the amount.

Pay on demand apps
Pay on demand apps allow you to access a portion of your wages ahead of payday. These service providers are often completely separate from your employer, so your boss is not involved in the process at all. Pay on demand providers generally do not charge an interest rate on your advance, but can charge a fee of up to 5% of the amount advanced. Like on-demand payroll, payments from third party pay on demand providers can take about two business days to clear into your account.
The application process varies slightly across the three different categories. Generally speaking, the process is as simple as downloading the app (including your bank’s online banking platform), connecting to your bank account, and requesting your advance. 

 

Should I use pay on demand services?

If you’re living payday to payday and you’re running low on cash and don’t think you’ll make it until your next pay, you’ll probably feel desperate for money. This is where costly payday loans can enter the lives of people who really can’t afford to repay their exorbitant fees.
You should only ever take out any sort of loan product when you have sought independent advice and have a solid understanding of everything that comes with the finance product — like the financial consequences if you can’t keep up with the repayments. Pay on demand services are no different. While it may be a convenient way to cover expenses while waiting for your salary, you need to be sure you fully understand what you’re getting yourself into before entering into anything.

 

Can I use pay on demand if I have a bad credit score?

On-demand payroll and pay on demand apps will generally not undertake a credit check. This can be good news if you need quick cash and have a bad credit score! If you’re applying for a wage advance through your bank, they may need to check your credit history — just like they would with any loan application.

 

Pros and cons of pay advance services

When weighing up whether an advance service is right for you, it’s a good idea to seek independent professional advice and consider the good and bad that comes with the service.

Some Pros can be...

  • No credit checks. This can be a convenient way for people with bad credit to access money. Be sure not to default, though!
  • Automatic repayment. Because the service is linked to your bank account or employer, your repayments are automatically made at the time your wage arrives in your account. This removes the risk of forgetting to repay the money.
  • Quick and easy to set up. There is no or little application process that usually occurs with other types of finance. You can generally just simply download the app and get started.
  • Low cost. The cost of borrowing on pay advance services may be significantly lower than other types of loans because there are generally no interest rates associated with the funds. A flat fee or percentage-based charge is simple to understand and can be generally affordable.

Some of the Cons to consider…

  • Can be expensive. While the fees may not seem high, if you are having to use this service on a regular basis, the costs quickly add up. This is when personal loans could be a better option, depending on your circumstances. If you find yourself short of cash quite often, contact an independent professional or a free financial counsellor to help you get your budgeting under control.
  • Can impact your credit score. There are generally no credit checks to sign up for these services. However, if you are struggling to make the repayments, you could end up defaulting or taking out other personal loans or credit cards to repay the advance. This would result in enquiries on your credit file which may have a negative impact on your credit score.
  • You could end up in debt. If you’re constantly having to access your wage early, you’re probably not having much success saving — and you could even be getting further and further in debt. While debt can sometimes be a good thing, it can also be a trap that’s hard to escape.

 

Pay advance apps in Australia

There are new apps for pay advance services in Australia emerging all the time. Some of the more popular ones include:

  • BeforePay
  • Commbank Advancepay available through the Commonwealth bank.
  • MyPayNow
  • MyPayFast
  • InstaPay
  • Earnd
  • PayActiv
  • WagePay
  • WageTap

If you can’t wait for your next wage payment and you’re considering pay on demand services, be sure that the benefits of the product you are considering outweigh the risks. You may also like to consider seeking independent advice from a professional before engaging any of these pay advance services. With responsible management, this type of finance provider may be the answer you’re looking for — but the other side of that coin could see you end up drowning in debt.

 

If you are wanting a loan, looking for a trustworthy lender and you have experienced a bad credit history, contact Finance One today. Our highly experienced staff can discuss your options with you to help you achieve your financial goals.

Disclaimer: The information above is of a general nature only and does not consider your personal objectives, financial situation or particular needs. You should consider seeking independent legal, financial, taxation or other advice to check how the information relates to your particular circumstances. We do not accept responsibility for any loss arising from the use of, or reliance on, the information. 

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WRITTEN BY

WRITTEN BY

Makala Elliott

Makala is the Marketing Manager at Finance One. She has worked in the Finance and Lending industry for over 10 years, gathering a wealth of experience. She is passionate about helping Australians get back on track with their finances by passing on her knowledge.

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