For years, the Pay-Day loan companies have preyed on people who need quick access to cash. They’ve offered a quick fix: cash when you need it. But when you read the fine print, you are often charged outrageous interest rates. That cash comes at a hefty cost in a variety of ways. And some folks, even after paying off their pay-day loan, find themselves harassed for years. Some companies have sold their information to thieves who use a scam where they attempt to intimidate you into repaying the loan, even when you’ve already paid it off. For years, I’ve had a variety of clients forced to respond to these scams and threats. Now, companies are offering their own type of assistance to their workers. The WSJ estimates that about 12% of employers offer this benefit.  But, should you use it if it’s offered?

Employer Payroll Advances

Companies have come to realize that when their workers are stressed out, they are less productive. It also can lead to a lower retention rate of their employees. To combat this, some companies are offering payroll advances (note, they don’t call them “pay-day loans” for a good reason). The goal of these companies is to help their workers cover sudden expenses without the workers being forced into pay-day loans.

The programs normally give a worker the right to receive a portion of their next paycheck. In return, the worker also pays a fee (often only a few dollars). The money is repaid through automatic deductions from future paychecks. Because of the automatic deductions, default rates tend to be low (another benefit for the company). And since it’s technically your money, the companies claim they are not acting as a “lender” to the employees.

Is It Worth It?

Whether it is worth it to you is a unique choice. Some things to consider:

  • The interest rate (it can be as high as 36%);
  • Fees (compare them to how much you are borrowing);
  • Your employer will access your credit score (are you comfortable with that?); and
  • What happens if you leave your job?

In some situations, using a payroll advance as a short term loan may make sense. But as with any situation where you are borrowing money, there are always two sides to the transaction. You need to review the documents and ensure you know what you are signing and how much it will really cost you in the end.

Next Steps

Considering a pay-day loan or advance? Does the paperwork seem overwhelming? Are the terms of the loan not as clear as you’d like them to be? Call my office to set up a meeting and we can review your proposed loan terms and conditions – (877) AMAYERS.

Andrew Ayers
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I work with business and estate planning clients to craft legal solutions to protect their legacies.