Australians have been warned against using increasingly popular “payment advance” services amid fears of exposing themselves to excessive leverage and unregulated products.
Pay advance services give workers access to their salary in advance, with users able to withdraw anywhere from $50 to $2000, which they then — along with a lump sum or percentage fee — pay back to the lender on payday. The services work similarly to payday loans, but with fewer fees and shorter repayment periods.
A number of large pay advance companies have sprung up recently, including Commonwealth Bank’s Beforepay, MyPayNow and AdvancePay, which are listed on the Australian Securities Exchange. Your customer base is increasing, spurred on by the rising cost of living and higher interest rates.
However, despite their growing popularity, cash-strapped workers have been warned to avoid these services.
A spokesman for the financial regulator, the Australian Securities and Investments Commission MoneySmart The financial advice department said while they may seem like a “quick fix,” users should look for other options.
“When you need money quickly, a prepayment service can seem convenient,” the spokesman said. “[However]Using a pay advance service means you have less money in your next payment, and overusing it can make it difficult to keep up with repayments when managing other financial commitments.
“Remember that you will be charged a fee every time you use the service. While payment prepayment providers have limits on what they can charge you, your bank may charge you if you don’t have enough funds in your account to cover your repayment.”
Borrowing money through a prepayment service may also affect your ability to borrow money in the future, e.g.
Another key concern of ASIC is that payroll services are unregulated and operate under a loophole in credit laws that allows providers to circumvent the need for credit checks or hardship cases.