Time to read : 3 Minutes
Are Advance Pay Services Safe?
Buy Now Pay Later (BNPL) services such as AfterPay and Zip are now well established. But the next wave of credit services look to be advance pay companies that allow you to ‘borrow’ money before your next pay cheque arrives.
They're marketed at people who need to pay bills or are struggling with the recent interest rate rises, but they do involve a fee and there are drawbacks if you can’t meet your other financial commitments.
What you need to know
Regular withdrawals through advance pay services can add up to big fees – with popular services like Beforepay charging a 5% fee on every withdrawal.
Advance pay debt may count against you when you apply for other forms of credit, like a car or home loan
Almost one in three Australians don't have a month’s worth of emergency savings to fall back on – which is one reason why advance pay services are starting to grow.
How it adds up
It's a rare household that doesn't need a bit of extra financial help when the pressure's on But when it comes to advance pay services, it’s wise to proceed with caution.
Fees charged on advance pay services can be massive, with just a 5% charge on your weekly salary effectively adding up to a whopping 260% interest over the course of a year.
Debt is common in Australia, with the average household debt for each Australian exceeding $107,000. More importantly, 37% of those in debt struggle to pay it off.
While some advance pay solutions charge a flat fee such as $5 per withdrawal, others charge a percentage, which can add up to eye-watering amounts on large transactions.
Be aware: Thirty-one percent of Australians don’t have enough in their emergency savings fund to cover a month’s worth of living expenses.
Are advance pay services safe to use?
Advance pay services are one way to plug cash gaps but there are other options out there. Do your research on any service you plan to use.
Advance pay services are currently unregulated, so tread carefully and don’t use any platforms that appear untrustworthy or have bad reviews.
You pay a fee every time you use the service, so pay advances every week soon add up.
There are other options: credit cards, personal loans and even BNPL services may be a better fit. Get advice from a financial professional if you're facing a shortfall.
Be aware of your other obligations. While advance pay services have a limit on what they can charge you, if you miss a mortgage or personal loan repayments, that could result in much more costly consequences.
The bottom line
Using any kind of credit service comes with risks. Taking time to research the options could pay off in the long run and make sure you're not out of pocket come next pay cheque.
