Payday Loan Alternative a Good (Or Risky) Thing?

    If you’re one of the millions of Americans for whom payday can’t come soon enough, technology is catching up with your dreams.

    Uber, McDonald’s and Outback Steakhouse are among a growing number of employers that are offering workers an on-demand system that gives them access to their money the day after they earn it.

    The Instant Pay Smartphone App

    The Wall Street Journal recently wrote about a new smartphone app from Instant Financial that allows workers to draw their pay the day after they performed the work. If they have an emergency or a bill that needs immediate payment, they can collect their earnings with a few swipes on their phone.

    The Instant Financial app, which is free to employees, sends a notification to users’ smartphones each morning at 10 a.m. telling them how much they earned the previous day and giving them the option of depositing half the money on a debit card.

    Several other apps on the market charge workers a fee to draw cash, often about $3 a transaction. Instant Financial charges employers to use its service instead.

    A Threat to Payday Lenders

    If the new technology spreads, the big losers might be payday loan companies that specialize in advancing cash at extremely high interest rates. Payday loan outfits typically charge interest rates of $15 per $100 borrowed, the equivalent to more than 400% annually. The loans often come with terms that make repayment difficult. About 12 million Americans take out payday loans each year.

    The technology is getting strongest interest from workers with hourly jobs whose work schedules often vary. Advocates say next-day payments allow employees to collect when they need the money, giving them more financial control.

    The Journal quoted the human resources director of a company that operates 54 McDonald’s restaurants in Florida. He said about 20% of the franchisee’s 1,300 workers receive money each day. He said they become very attached to the technology and anxious whenever there’s a glitch or service outage. “It’s almost like a drug,” he told the Journal.

    Instant Financial; which says its app offers the key to what it calls financial wellness, gives workers the ability to better manage their bills.

    “Allowing employees to access their earned income when they need it, without fees, improves their financial wellness by allowing them to avoid late fees and expensive alternative lending solutions,” Steve Bartha, Instant Pay’s CEO, said.

    Will this Kill Budgeting?

    But is that a good thing? Waiting for a paycheck can be agonizing if you owe money and creditors are demanding payment. But what if you don’t have those sorts of bills? The traditional weekly or bi-weekly payroll system can help some workers budget their income and deposit into savings or retirement accounts. Instant payments could present a challenge for people who lack financial discipline.

    Ultimately, it turns on how you manage money. Turning to payday loans often make a bad financial situation worse. Payday loans give borrowers the cash to pay immediate debts, then trap them in a high-interest hell that can be extremely difficult to escape. Often the ultimate solution is entering a debt management program through a nonprofit debt-counseling service.

    Most financial advisers say people should create an emergency fund, typically containing about six months earnings, to prepare for unexpected bills or job loss. Building a fund requires discipline, and the project becomes harder if they are able to spend what they earn as soon as they earn it.

    Some employers who use Instant Pay or another fast-payment system say the ability to access earnings right away motivates some workers, who are willing to put in longer hours and are less inclined to call in sick if they know they will have next-day access to their earnings.

    Everyone handles money differently, and the next-day payment technology will make life easier for people who sometimes face financial demands the require immediate cash. Whether you’re able to budget your money using the new apps or they inhibit your ability to save is something you must answer for yourself.


    Bill Fay
    Staff Writer

    Bill “No Pay” Fay has lived a meager financial existence his entire life. He started writing/bragging about it seven years ago, helping birth into existence as the site’s original “Frugal Man.” Prior to that, he spent more than 30 years covering college and professional sports, which are the fantasy worlds of finance. His work has been published by the Associated Press, New York Times, Washington Post, Chicago Tribune, Sports Illustrated and Sporting News, among others. His interest in sports has waned some, but his interest in never reaching for his wallet is as passionate as ever. Bill can be reached at

    In debt? We can help!

    • Amount
    • Type
    • Contact

    How much do you owe?

    What can we help you with today?

    Related Articles

    Financial Help for Those Impacted by COVID-19

    The federal government finally flexed its huge financial muscle, throwing a $2.2 trillion stimulus punch at the coronavirus in hopes it will ease some of the pain American consumers are – or will be – suffering in the fight against COVID-19.The ...

    Continue Reading
    Image of a new credit report

    How the New FICO Credit Scoring System Will Affect You

    The announcement that FICO will put two new credit scoring models – FICO 10 and FICO 10T – into play this summer is the ultimate good news/bad news situation for consumers.The good news is that if you have a score anywhere above 680 – and continue ...

    Continue Reading
    Chalkboard with graph of rising credit card rates

    Why Credit Card APR’s Are Rising, Despite Fed’s Third Rate Cut of 2019

    Typically, a decrease in the federal funds rate means your credit card APR should fall as well, but that’s not what is happening lately in the U.S. economy.Banks have backed themselves into a corner with an influx of cash-back and travel rewards credit ...

    Continue Reading
    People sitting at computers and tablets looking up personal loans to submit an application

    Personal Loans on the Rise

    The loan business is getting personal.We’re talking personal loans, and they are exactly what they sound like. You borrow money from a lending institution and pay it back.The big difference from mortgages or car loans is that you don’t need ...

    Continue Reading
    American families are having trouble with understanding finance

    Financial Literacy a Tough Test for Most Americans

    The latest trends in spending and debt indicate that America already has forgotten any lessons we might have learned when the bubble burst on the U.S. economy in 2008.The reputable and renowned Pew Charitable Trust says that 80% of American adults are in ...

    Continue Reading
    Prepaid Reloadable Card Card

    GPR Cards An Alternative To Banks, Credit Cards

    If you like the convenience of a credit card, but lack discipline and overspend when using one, a general purpose reloadable (GPR) card could be the way to stabilize your finances.GPR cards, more commonly referred to as pre-paid credit cards, are safer ...

    Continue Reading
    Tips for banking and their new rules

    How Credit Unions And Banks Are “Gamifying” Savings

    Nobody wants to play games with their investment dollars, but what if the game was rigged so you couldn’t lose?Credit unions in five states have come up with a savings account – remember them? – that includes a chance to win monthly, quarterly and ...

    Continue Reading
    Man Filing Papers For Bankruptcy

    3 Reasons To File For Bankruptcy

    There aren’t many words in the English language less understood and more avoided than bankruptcy.“There definitely is a stigma attached to it,” Jeff Badgley said. “When people hear it, they get really uncomfortable.”Badgley sees the ...

    Continue Reading
    Get Help Now

    Overwhelmed with debt? You have options for lower monthly payments!