Every time I settle in for an hour or three of on-demand television, I see ads for Earnin. In one of them, a savvy older-brother type tells the person behind the camera that he needs to stop asking to borrow money and instead get the Earnin app. “You can access your money that you earned, without any fees or interest,” the savvy guy says. “You just tip whatever you think is fair.”
But is it really that simple to get paid before your company’s designated payday? There must be a catch—something to prove that this offer is too good to be true.
The basics of early wage apps
There are two types of early wage access programs. The first is those that work independently of your employer. You provide some details about your hourly employment and connect your bank to get a short-term loan.
Earnin allows you to withdraw up to $100 per day, but that maximum withdrawal can change over time to be as low as $50 and as much as $500. Instead of charging fees for the convenience, Earnin encourages, but does not require, tipping for the service. It says that contributions from the total community keep the app going.
Then there’s a larger group of services that requires your employer to sign up to offer advances through a third-party app. Even allows employees to withdraw earnings to their bank account or pick it up at any Walmart location in the U.S. It advertises no hidden fees, no loans, and no interest, and provides budgeting tools to help users anticipate upcoming expenses. Walmart and sister store Sam’s Club offer Even to employees, allowing you to access a portion of wages you’ve earned before pay day up to eight times a year (there’s a cost if you want to do it more than eight times). Then, that money is deducted from your next paycheck.
PayActiv is another option: It doesn’t require a bank account for cash advances and even works with prepaid debit cards. Meanwhile, FlexWage allows early wage access and quicker access to tips and commissions through a Flex Pay debit card. The employer can choose how frequently you can dip into your earned wages. Daily Pay charges $1.25 for each transfer of earned wages to your bank account; on pay day, you receive your full pay check, and any transfers are deducted from your account. ZayZoon also requires employer participation to provide advances that automatically debited on your next payday.
Some of these services call it a payday advance. Some tell you that you can pick your own pay day. Some say you’re just getting quicker access to the money you already earned. Very few of them use the word “loan.” But that’s essentially what they are.
The new payday loan?
“Just because you access it through an app doesn’t mean it’s not a loan,” Lauren Saunders, associate director of the National Consumer Law Center, said. She describes early wage loans as balloon loans, which require you to pay them back in one lump payment.
Saunders explained that employer-endorsed early wage access programs are slightly less risky, because they’re tied to your precise hours and pay schedule. An early wage app that simply syncs with what’s normal activity for your bank account, like Earnin, could backfire. “Sometimes [these apps] get it wrong when they think your paycheck is coming in. You could be hit with overdraft fees or nonsufficient fund fees,” she said.
Despite the ease of using these early wage programs, they’re far from foolproof. “It’s pretty common for people to get into the cycle of needing to do this every pay period,” Saunders said. “You’ve got this hole in your paycheck, but you also need that money.”
Then there’s the issue of tips, like the ones Earnin encourages. Earnin is under investigation in 11 states for concerns that it’s offering payday loans in disguise–with interest rates to match. The New York Post reported in March that Earnin suggests a tip of $9 for a $100 advance, which equates to a 469% interest rate for a one-week loan. In states where payday loans are legal, there’s sometimes a cap on how much interest lenders can charge. In New York, for example, the interest rate cannot be more than 25%. In California, legislators are pushing to cap early wage access fees at $14 per month.
But at the federal level, tips make all the difference. In its 2017 update to its payday lending rule, the Consumer Financial Protection Bureau noted, “The Bureau has decided not to confine such no-fee advances solely to the employer-employee context, as the very specific features of their product structure makes them an exclusion from the rule for them likely to be beneficial for consumers across the spectrum.” The next line provides a caveat: The CFPB can reexamine that status in the future if it sees evidence otherwise.
Alternatives to early wage programs
While early wage access apps feel fresh, the concept of getting an advance on your pay isn’t new. I’ve heard stories of people who could ask their boss for a pay advance or loan, although those stories are usually told by baby boomers.
Saunders said that a cash advance on a credit card could help bridge the payday gap, if you know you can pay that advance back right away. Other options include seeking small loans from credit unions or checking to see if your bank offers overdraft lines of credit. The latter offers a relatively low interest rate on the amount you’ve overdrawn.
And, of course, there are those notorious payday loans, although conventional wisdom (and everything you’ll read here at Lifehacker) says to avoid them at all costs. Much like Earnin’s ad campaign, the traditional loan sharks don’t seem to be folding anytime soon.
This post was updated on 8/14/2019 to correct ZayZoon’s repayment period.