Earned wage access
4 mins
Why You Should Choose Earned Wage Access Over Payday Loans
Author
Krista Fabbro
Published
Mar 15, 2022
Payday loans have been a go-to for many people in need of quick cash. It’s reported that around two million Canadians use payday loans every year.
On the surface, these loans might seem like a convenient fix—you get cash instantly and it’s pretty much a “no-questions-asked” kind of transaction. But when you dig a bit deeper, it's clear that they might not be the financial lifesavers they promise to be.
Today, we’re going to share why payday loans might not be the best option, and why opting for something called earned wage access is often a safer choice.
Quick Recap on Earned Wage Access
Instead of having to wait around for your scheduled payday, earned wage access lets you tap into a portion of the wages that you've already earned, but haven’t yet been paid for. It works by allowing you to build up a balance as you put in your hours, which you can then access before your actual payday.
Find out everything you need to know about earned wage access and how it can help you.
The Risks of Payday Loans
You've probably heard of payday loans. You might have even used them before. Though they may come in handy in a financial bind, they often have a lot of strings attached.
High Interest Rates & Fees
One of the biggest red flags with payday loans is the ridiculously high interest rates and fees. You might think you're just borrowing a small sum to get by, but with the additional costs, you can end up paying back way more than expected.
To put things into perspective, the average payday lender in Canada will charge you anywhere from $15 to $20 per $100 you borrow. Let’s say you take out a $300 loan that you have to pay back in two weeks. If the payday lender charges you $17, that’s the same as an annual interest rate of 442%! Sheesh. No wonder payday loans are also called “high-cost loans”.
Debt Cycles
Because of the steep interest rates and fees, many people find it hard to pay back the initial loan. So what do they do? Take out an additional payday loan to cover it. Before they know it, they’re stuck in a revolving door of debt that's hard to escape.
Negative Impacts on Credit
If you're unable to repay a payday loan on time, it can lead to late fees and potentially negatively affect your credit. Over time, this can significantly lower your credit score and affect your ability to borrow money in the future.
Predatory Practices
Some payday loan providers are known for their sneaky practices. They’ll sometimes target people in vulnerable financial situations and use aggressive marketing and hidden terms to lure them in.
Why Earned Wage Access is a Safer Route
For folks in need of fast financial relief, earned wage access is often a much better choice.
Flexibility & Control
Unlike payday loans, where the terms are set by the lender, earned wage access lets you tap into what you've already earned early during the times that you need your money most. It acts as a financial safety net that's ready whenever you are—without any strings attached.
Low Fees
Many earned wage access services have minimal fees. Take FastForward by MoneyUp, for example. Our customers benefit from low fees that are significantly cheaper than credit cards, overdrafts, and alternative lenders. Considering the mountain-high fees and interest rates of payday loans, earned wage access is a much more cost-effective choice.
No Debt Cycle
It doesn’t make sense to take out a $500 payday loan if you only need a few bucks here and there to help with things like groceries. Given that you only have access to money you've earned versus a big lump sum, it’s a lot less likely that you will fall into a debt cycle if you’re using earned wage access responsibly.
Financial Wellness
While earned wage access helps with immediate financial needs, it can also be part of building a sustainable financial wellness plan. By giving individuals early access to their earnings and encouraging them to only withdraw what they need when they need it, this service helps smooth out financial rough patches, all while promoting financial stability.
Your Choice Matters
Choosing earned wage access over payday loans can mean saving cash, minimizing stress, and reducing the risk of falling into a cycle of debt. But even with all its benefits, it's still important to make sure earned wage access is the right fit for your financial situation.
Making informed financial choices is empowering. Your financial journey is personal, and having the right tools and knowledge can make all the difference.
Questions about how to get started with earned wage access? Contact us today!
