EarlyPay
What is a Payday Loan? Why On-Demand Pay is a Better Alternative
Many Australian employees will seek short-term financial relief, particularly when they need to cover unexpected expenses that arise. Payday loans can often seem like a quick and easy solution to their problems, offering easy access to cash when it is needed.
So, what is a payday loan? How do they work, and can they end up being more of a trap then a help?
Let’s look at payday loans in more detail and explain why pay-on-demand is a better option for Australian employees.
Understanding payday loans
Payday loans offer a short-term cash advance that is designed to tide employees over until their next salary payment.
Typically, payday loans are small amounts, depending on what the lender is willing to offer.
Intriguingly, payday loans are often unsecured. This means the employee doesn’t need to set aside any collateral to secure the loan. This can be a relief when employees are in a tight spot and need access to quick cash without needing to pledge any assets.
Borrowers will usually need to repay these loans on their next payday. This immediate schedule often makes them a popular choice for managing emergency expenses.
The downsides of payday loans
A payday loan can often be a double-edge sword, with both pros and cons. On the plus side, they give employees quick access to cash, and this can be a lifesaver for them when they need it in a pinch.
It’s not all good news when it comes to payday loans, however. These types of loans often come with very high fees (20% of the amount borrowing plus an extra 4% per month), and this also translates into very high annual interest rates.
Payday loans can create a debt trap for employees. This is often because the short-term repayment period and high fees often result in borrowers rolling over their loans or taking out new ones so they can cover the original loan.
The reality is payday loans are often expensive, and even though they’re tempting for those needing cash quickly to pay bills or debts, they aren’t a sustainable option, and the benefits don’t outweigh the risks.
What is pay-on-demand?
Pay-on-demand, also known as earned wage access (or EWA), is a more attractive alternative to a payday loans.
Essentially, on-demand pay is a way for employees to receive payment for their work as they are earning it, instead of waiting until their usual pay cycle.
This payday loan alternative offers employees unprecedented control over their finances. They can then tackle unexpected expenses as they arise without the need to engage with a third-party payday lender.
For many Australians, the ability to manage day-to-day expenses without waiting for payday is a significant advantage. On-demand pay offers significant convenience and flexibility for those looking for more control over their finances. Whether it's covering an unexpected bill or simply smoothing out their cash flow, on-demand pay can provide employees with an attractive, practical solution.
Switching to pay-on-demand
If you’re an employee looking to make a switch from a payday loan to on-demand pay, you’re making a positive step towards better financial wellbeing.
Here are a few ways you can make this transition:
Ask your employer if they offer pay-on-demand
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Check with HR to see if your current employer offers pay on-demand (also known as Earned Wage Access) as an employee benefit.
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If you’re unsure, speak with your line manager or someone in your payroll or finance department.
If your employer offers pay-on-demand
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If your employer does offer pay on-demand, you should carefully review the terms and conditions to understand how the pay system works. That includes fees, withdrawal limits, repayment information and processing time.
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Enrol in the on-demand pay program and set up your account based on your employer’s instructions. This may often involve downloading an app or accessing a platform and linking it to your bank account.
What to do if your employer doesn’t offer pay-on-demand
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Advocate for it! If you believe that on-demand pay can be a real benefit for you and your colleagues, then consider suggesting it to your HR department. Explain the advantages over alternatives, such as payday loans.
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Explore other ways you can manage your cash flow and break free from the payday loan cycle. This might look like:
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Creating a detailed budget to track your income and expenses;
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Build a small emergency or “rainy day” fund so that you’re covered for unexpected costs without resorting to high interest loans;
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Explore debt consolidation options so you can combine your payday loan debt with any other outstanding debts into a single loan with a lower interest rate and more manageable payments;
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Seeking financial counselling can help provide guidance on how to manage debt and budget effectively.
Break the payday loan cycle
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Resist the urge to take out a new payday loan, even when you’re short on cash.
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Make repayments to pay off your existing payday loan a priority.
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Make sure you understand the total cost of a payday loan, including any applicable fees and interest.
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If you’re feeling overwhelmed by your payday loan debt, don’t hesitate to speak with a financial advisor who can give you extra guidance.
Conclusion
In summary, even though payday loans can offer a quick solution for financial emergencies, oftentimes they will come with significant risks and costs attached that make it hard to manage debt effectively.
On the other hand, pay-on-demand is a powerful tool that can help break the cycle of debt and manage finances effectively.
From reducing financial stress to improving work-life balance, this innovative service empowers workers to take charge of wages and manage finances in a debt-free way.
Are you ready to embrace the flexibility and freedom that on-demand pay offers?
Employees can finally get the financial freedom they deserve with Access EarlyPay: the on-demand pay app.