If you’re in a tight spot financially, you might consider asking for a paycheck advance, which some businesses provide as part of their benefits package through a third party. These loans can be a low-cost option for borrowing, and they may also help you establish credit.
They do, however, charge interest, and paying for early access to your own money might lead to unhealthy financial habits.
Here’s what you need to know about employer-provided paycheck advances and other options for quick cash (Bridge Payday).
Advances on your paycheck through your employer.
Most lenders offer small personal loans through an employer’s benefits site, often up to $5,000. To underwrite your loan, these organizations look at your employment and income statistics, but they may also look at your credit. They submit payments to credit bureaus, so paying on time can help you boost your credit score.
These loans have annual percentage rates that might reach double digits. Salary Finance, for example, with APRs ranging from 5.90 percent to 19.9 percent. Loan payments are taken from the employee’s paycheck and have maturities ranging from a few months to a few years.Â
You are still accountable for loan payments if you leave your job.
If they can’t get it from your salary, a corporation may use your bank account information to collect repayment, though they say they’ll negotiate with borrowers who leave their positions.
Employer-sponsored paycheck advances advantages and disadvantages.
Pros
- Financial literacy: Some applications provide financial education to assist you in better understanding your financial status and identifying ways to improve it.
- If the lender reports your payments to the credit agencies, the loan will help you develop credit when you need to borrow again. It’s not the best option for simply building credit, but it does provide a benefit that other payday loan choices may not.
- Access to cash at a low cost: With interest rates in the single and double digits, these loans are likely to be more affordable than payday loans, with rates as high as 400%.
Cons
- It’s not that more money is a better benefit: Consider whether this program is a better perk than a higher salary if your employer offers it as a benefit. Consumer advocates argue that if you’re taking out these loans, you might be better off looking for a job that pays more.
- Borrowing your own money for a fee: You’re essentially paying to borrow your own money when you pay interest on an employer-sponsored loan.
Loan apps vs. employee loans
Some additionally provide immediate paycheck advances of a few hundred dollars or more.
These apps charge subscription fees or gratuities instead of interest. Unlike employee loans, these salary advance applications don’t check your credit and don’t send your payments to the credit bureaus automatically.
Alternatives to Employee Loans
Borrow from a family member or a friend:
Asking for money can be uncomfortable, but it’s one method to protect your credit and get a fair shake. You and a friend or family member can even write a contract outlining payback terms and interest rates. Consider an employee loan as one of many quick-cash solutions available to you.
Loans from a bank or a credit union:
Personal loans offered by your bank or credit union may be a smart place to start. You might collect your money in as little as a week, and you won’t have to rely on your company.
Lending circles
You can start a lending circle with a few friends or family members. Every month, everyone in these circles contributes a certain amount of money, and one individual receives the entire pot.
It’s a longer-term commitment, but it could come in useful if you have an unexpected bill.
Consider taking on a second job to supplement your income.
There are both online and offline choices from rideshare driving to survey taking. This won’t get you fast cash, but it will get you money without paying for it.
Online loans
Personal loans are also available from online lenders, who customize their packages to clients of all credit levels. Even if your credit is bad, you may be eligible for an online loan based on other factors. These loans are frequently funded the same or the next day after authorization, and the sums start at around $1,000.
