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Whether it’s a medical emergency, car accident, or some other unexpected cost, many Americans are financially unprepared.
Even in today’s strong economy, many Americans continue living paycheck to paycheck and 40 percent don’t have $400 to pay for emergency expenses, NPR reported. Many working-class people opt for payday loans and other high-cost borrowing options for emergency expenses. But now some companies are helping their employees by offering cheaper ways to obtain emergency cash.
Tech startup PayActiv is a platform that helps businesses offer employees access to emergency cash with low fees. The company’s website says that two-thirds of the workforce needs access to cash between paychecks.
Safwan Shah, the founder and CEO of PayActiv, told NPR that low-income workers pay about $150 per month in interest and fees for high-cost, short-term loans. That adds up to $1,800 to $2,000 per year.
Walmart and PayActiv
Retail giant Walmart is a customer, using PayActiv’s platform combined with the app Even, which helps people manage their money, reported NPR. This perk enables workers to obtain monetary relief in between pay periods using their already earned wages, such as 50 percent of their paycheck, for a low monthly subscription fee. Also through Even, funds can be transferred to a bank, used to pay online bills, loaded on a prepaid card, or obtained for cash.
The money is not a loan or debt and there are no hidden fees, underwriting, or charged interest.
More than 200,000 Walmart workers are utilizing this but it isn’t without risks, such as not having future money as they’ll ultimately receive a diminished paycheck, potentially cutting into monthly expenses. This could lead to increased credit card use or other means to bridge the gap, again, in between paychecks.
Using Payday Loans
Many workers will likely continue using payday loans. Why? They are easy to obtain as most states require consumers to show a bank account, proof of income, and a valid ID. The loan balance and the finance charge (including interest and service fees) are usually due in two weeks—typically the next payday.
But buyers need to be aware. Payday loans provide quick cash but their national average annual percentage rate sits at almost 400% annual percentage rate (APR). Meanwhile, the average credit card interest rate is 15.54% APR, according to the Federal Reserve.
For people who want to stay away from payday loans, there are other options such as personal loans or installment loans. These will offer borrowers a larger borrowing amount, a longer time span to pay it back, and an APR in the 10 percent to 30 percent range. But for consumers who have bad credit, this is still less than the cost of a payday loan.
Author: Debbie Baratz
Debbie Baratz has written about topics including personal finance, financial markets, and banking. And as a media relations professional, she spent 10+ years working at not-for-profit, private, and publicly-traded financial institutions. When Debbie isn’t working, she can be found working out, reading, or traveling.