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6 common myths about pay advances
The contents provided on this page are for informational purposes only and do not constitute financial advice. Consider your personal circumstances and objectives before making any financial decisions.
Ever found yourself facing unexpected expenses that throw your budget off track? It happens to the best of us, and seeking financial assistance during these times can sometimes feel daunting.
Pay advances can serve as a reliable safety net in these situations, but there are many misconceptions about them that can make individuals hesitant to use it.
This article aims to debunk common myths surrounding pay advance services, to help you make informed decisions about how to navigate any unexpected financial hurdles.
Myth 1: All pay advances come with high interest rates
Many people think that all pay advance services come with high interest rates, however this is not the case.
Generally you don’t pay interest on the money you borrow, and instead you usually pay a fee of up to 5% of your advance each time you use the service.
The Beforepay Pay Advance is one example that only charges a 5% fixed fee on the amount you borrow. So if you take out $300 your transaction fee will be $15 and your total repayment will only ever be $315 - never more!
Myth 2: If I get a pay advance it will impact my credit score
A common myth that can leave many hesitant about using pay advance services is the fear that it will impact their credit score.
This is typically not the case because most providers of pay advances do not report to credit agencies.
Beforepay is an example of an app offering a Pay Advance product that doesn’t impact your credit score and also doesn’t require a credit check. This is because we want to make a decision based on your current financial habits so we can assist with your current needs.
Myth 3: A pay advance is like a payday loan
Contrary to popular belief, payday loans and pay advances are very different. Here are the key ways they differ.
Credit checks
Most pay advance providers evaluate your borrowing capability using their own internal algorithms rather than examining your credit score. Payday lenders, on the other hand, will look at your credit history, score and current financial situation.
Credit score impact
Payday loan providers often initiate a ‘hard enquiry’ on your credit, which temporarily lowers your score by a few points each time this is done. Repeated loan applications can add up to a bigger negative impact. This means that late repayments on payday loans can be reported to credit bureaus, potentially causing significant damage to your score.
Whereas pay advance services generally don't make hard enquiries to credit bureaus. And since your repayment is automatically debited from your bank account on your next payday, the likelihood of late payments and defaults are lower than some traditional lending products.
Interest charges
Payday loans often have high interest rates and fees. Most payday loans charge an establishment fee of 20% of the amount borrowed and a monthly fee of 4% of the amount borrowed. (Finty)
For example if you borrowed $2,000 a year you’d have to repay $3,360 the equivalent of an interest rate of 68% p.a (MoneySmart).
Pay advance services generally don’t charge interest, and instead charge a transaction fee for each advance you take.
For example, Beforepay only charges a 5% fixed fee on each loan for the Pay Advance product. Unlike payday loans and some other traditional lending products, we do not charge any interest charges, late fees or other ongoing costs, making it a safer and more affordable way to borrow.
Myth 4: Pay advance services are only for those with poor financial management skills
Pay advance services are designed to offer financial flexibility to anyone, regardless of their financial management skills, and could offer a faster, more affordable and more convenient way to access extra cash for urgent and unexpected expenses.
For instance, an unexpected injury or a car breakdown can affect anyone, whether you consider yourself pretty good at managing your finances or not. A pay advance could help you cover those bills that just can’t wait until payday.
A Beforepay Pay Advance is fully digital and online, meaning if you are eligible you could access money when and where you need, no matter what time of day it is, in as little as 5 minutes!
For more on managing your finances you could check out our 5 steps to manage your financial wellbeing or our list of financial support and resources.
Myth 5: Pay advances are only for emergencies
While a pay advance can be useful for addressing unexpected expenses or emergencies, they can also be used for various other purposes, such as support with covering regular bills or making necessary purchases like groceries for the week until you get back on top of any temporary cash-flow challenges.
Pay advance services offer flexibility, allowing you to access fast money, which can be beneficial for managing day-to-day expenses or taking advantage of time-sensitive opportunities. This could help you avoid late fees or overdraft charges on your bills, for example, by providing quick access to funds if your bills are due before your next payday.
Myth 6: Once you’ve used a pay advance once, you are dependent on it
A pay advance is designed to provide temporary assistance and generally should not be relied upon as a long-term solution for financial challenges. Many pay advance services are designed to regularly assess your eligibility and borrowing capability to make sure you are’nt putting yourself at risk of revolving debt.
As an ethical lender, Beforepay offer an example of a Pay Advance that helps you avoid the risk of debt traps. We provide a personalised limit designed to ensure you borrow only what you can afford to repay, and only let you take out one advance at a time, with the first needing to be repaid in full prior to being eligible to take out another.
The Beforepay app also offers spending insights and budgeting tools to help you track your spending and develop healthier financial habits.
Remember to always do your research before taking out any type of loan, whether it’s a pay advance or another type of lending product. It's important to consider your own financial circumstances and capabilities to make sure you're making the best decision to help you manage your cash-flow and expenses.
Disclaimer: Beforepay Group Ltd, ABN: 63 633 925 505. Beforepay allows eligible customers to access their pay and provides budgeting tools. Beforepay does not provide financial products, financial advice or credit products. The views provided in this article include factual information and the personal opinions of relevant Beforepay staff and do not constitute financial advice. Beforepay and its related bodies corporate make no representation or warranty, express or implied, as to the accuracy, completeness, timeliness or reliability of the contents of this blog post and do not accept any liability for any loss whatsoever arising from the use of this information. Please read our Terms of Service carefully before deciding whether to use any of our services.
