Managing finances would be easy if things always went according to plan. Folks would go to work, make money, and pay for what they needed. But for people who live paycheck to paycheck, unexpected expenses cause some problems. Payday loans or a credit card cash advance could help. But these options are often very expensive and end up costing more in the long run. Luckily, there is another way people can get their paycheck early.
Paycheck advance apps are a nifty piece of technology that gives people access to the money they need without the burden of high-interest debt. They work by allowing users to get funds from their paychecks as needed, as opposed to when employers distribute them. In the long run, getting some of your paycheck early can help with scheduling payments, planning a budget, and improving one’s financial stability. If a more frequent income sounds appealing, it’s helpful to understand these apps and how they work.
DailyPay is a popular choice when trying to get your paycheck early. And according to CNET, it delivers what its name promises. The app displays users’ accrued earnings in the current pay period. It then asks how much they would like to have sent to their bank account. The transaction is free if users can wait a day or so. But if your need to get your money immediately, there is a small fee of $3.
Over the last decade, these paycheck early apps have grown in popularity as more employers offer them to workers as a benefit. Largely unregulated, the apps are third-party services that connect to corporate payroll departments, allowing employees to access a portion of their earned-but-not-yet-paid wages. Major companies like Walmart, McDonald’s, and the parent of Outback Steakhouse, have joined the trend, listing these apps as employment perks.
Designed to get people out of financial jams, most of these apps (like Even) charge a monthly subscription fee. Others, (like FlexWage) charge a fee for each transaction. Some companies cover the fees for a certain number of early paychecks. And others provide for an unlimited number of transactions. If your organization uses Instant Financial’s app, no one has to foot the bill as there are zero usage charges. Instead, the application makes money by putting the advances on a Visa debit card and taking a portion of the merchant interchange transaction fees.
With inflation rising at the fastest rate in four decades, the popularity of these apps seems set to grow. Especially since more than 14% of Americans are living paycheck to paycheck and struggling to pay their bills, according to Lending Club, a peer-to-peer loan company. As such, the apps are an evolution of long-established patterns for the lowest-paid Americans.
However, consumer advocates are a little wary of the trend. While acknowledging that the early paycheck apps are an improvement on loans that come with exorbitant fees or interest, Sohrab Kohli, a financial policy researcher at the Aspen Institute, says the services could be useful for workers who have a couple of unexpected expenses a year. “But if they’re using it every paycheck, it isn’t a great solution for meeting that need.” His concern lies with the negative effects the app could have on an individual’s credit scores over time.