April 23 2021

No interest, no fees: the payday loan alternative

It’s become a fact of modern-day life. Pay is often spent long before the end of the month, and there is an anxious countdown until the next payday.

Just meeting everyday bills can be a challenge. Throw in some unexpected expenses and the problem can get much tougher. That’s why so many people in the UK have turned to payday loans.

Payday loans have been a financial prop for people when their car has broken down, the boiler needs a repair, or the children are desperate for new school uniforms.

There are those who turn to them simply to put food on the table or cover essential bills. In fact, people have used payday loans to solve a whole host of financial problems.

For people with car finance agreements, credit cards, utility bills, and other financial commitments, the fear of being late with just one payment is very real.

The impact on credit scores from a late payment can be devastating. This means that applying for a mortgage or getting the best rate on a personal loan can all be put in danger with just one late or missed payment.

With this in mind, perhaps it’s understandable why people have historically turned to payday loans. 

The payday loans of old

Payday loans are, of course, nothing new. They’ve been a hugely popular option to allow people to survive until their next payday when they’ve found themselves short of cash. This, alongside credit cards, has been seen as something of a saving grace for thousands of people across the UK.

So surely people should be snapping up payday loans in their time of need. The problem is though, that payday loans aren’t the answer.

The fact that the UK Government was forced to implement stricter rules on payday lending and the barrage of complaints about these products is proof enough that something wasn’t right.

Payday loans charge unbelievably high-interest rates, extortionate fees for late payments, and trap people into a never-ending cycle of debt.

How do payday loans work?

Payday loans are the most common form of high-cost, short-term loans. Typically when people have been searching for extra funds to tide them over, payday loan companies have been where they’ve ended up. 

Payday lenders will ask for details of your income and when your next pay date is. Based on how much you earn plus some other affordability checks, the lender will tell you how much you can borrow.

The loan usually needs to be repaid in one go by the end of the month (with interest added of course). However some payday lenders now allow people to pay in three monthly instalments. Nearly always this means that the borrower will rack-up even more interest at an eye-watering rate. 

The problem with payday loans

We all know that life throws challenges our way. After what we’ve all faced over the last year or so, many people are less financially stable then they were before. 

At times, payday loans have been the only option for some people. If your car breaks down and you can’t work without it, perhaps paying an interest rate that runs into the thousands seems justifiable.

Think again. This level of interest has never been acceptable and has only caused long-term harm to people in need of help when they‘re most vulnerable. 

Although financial advice services won’t outrightly discourage payday loans, they do make it clear that these loans come with plenty of warning signals.

The standout feature of any payday loan is the interest charged on the amount borrowed. The APR of a payday loan can be up to 1,500%.

Compare this to the average APR of a personal loan (around 9%) and that of a credit card (around 22%). Now it becomes clear that payday loan interest rates are astronomical and simply unfair.

Missing a payment or not paying on time normally means more fees to pay on top of the original loan and interest. Often borrowers will pay interest on the late payment fee too.

Although there are now caps on fees thanks to payday loans being regulated by the FCA, this doesn’t prevent people from getting trapped in an endless cycle of borrowing and debt spiralling out of control.

And the ones who benefit? Well, it’s certainly not those who were asking for help in the first place. 

The payday loan alternative 

Let’s be honest, although payday loans may have been a small help to some people, the evidence shows that for most people taking out one of these loans becomes a downward spiral.

The cost of debt isn’t just financial. Many, many lives are sadly lost every year as people take their own life after struggling with debt.

But there is a better alternative for those in need of money urgently than payday loans. It’s called on-demand pay.

On-demand pay allows employees to access their earnings before payday. So if an employee needs £50 to cover an urgent expense or bill, they can get this by accessing what is commonly called a salary advance, or pay advance.

So now there is no need to take the risk of getting a payday loan. Not to mention paying the extortionate interest rates and living with the damage they cause to your credit rating.

On-demand pay is a safer and cheaper alternative to payday loans.

How does on-demand pay work?

Openwage is a refreshing alternative to payday loans, credit cards, and overdrafts. Openwage gives employees access to pay on-demand. This means access to the pay that an employee has already earned.

No interest

The biggest difference between a payday loan and using Openwage’s on-demand pay app is that there’s no interest to pay. On-demand pay isn’t a loan or any form of credit. It’s your money that’s accessible on your schedule.

No damage to your credit score

Accessing your pay on-demand with Openwage won’t affect your credit score, unlike payday loans, credit cards and overdrafts. So a short term injection of cash to pay an urgent bill won’t damage your financial future. With Openwage, there is no credit check.

Low, transparent transaction fee

On-demand pay with Openwage has been designed to be a safer and cheaper alternative to payday loans. Employees pay a low, transparent transaction fee of 1% per transfer. The minimum fee per transfer is £1.

Your employer may choose to pay the fee for you to access your earnings. In this case, there is nothing for the employee to pay. Your employer needs to be signed up to Openwage for you to access your pay on-demand.

What can I use Openwage for?

Until now, receiving an unexpected or urgent bill left many employees with no other option than to apply for a payday loan.

The problem has always been when using a payday loan becomes a habit rather than the exception. The payday loan trap results in interest and late payment fees piling up. This can ruin the borrowers credit score and more seriously, push them into deep debt.

With Openwage, employees can access the money they’ve already earned without having to wait for payday. Since it’s not a loan, there’s no interest to pay. Instead of having to repay the money, it simply gets deducted from their pay when their usual payday comes around and they receive the remaining amount.

Sound like a good option? You might be wondering whether there are limits to what on-demand pay can be used for. Here are some of they ways that on-demand pay can be used:

1. Cover unexpected bills without getting into debt

Most people’s lives hit the odd bump in the road when a bill takes them by surprise. Just like a payday loan, Openwage can be used to get you over that bump. Unlike a payday loan, you won’t be paying any interest. 

So there is no risk of getting into debt with Openwage because employees can only access what they have already earned – and not more.

2. Feel more in control of your money

Being able to access your money as soon as you’ve earned it can be hugely liberating. Instead of waiting weeks to get paid, you can get paid as often as at the end of every day.

Having quick, easy access to your earnings can help you feel more in control of your money. This can have a positive effect on your financial wellbeing because you control when you get paid.

3. Save yourself interest that you’re paying

If you already have debt built up on a credit card, you’ll be aware that how much you pay off each month make a huge difference to how quickly you can pay off the debt.

The default for most credit cards is to ask for the minimum payment. But only paying the minimum amount off your credit card means you’ll be paying it off for a very long time.

But with Openwage, you can access your earnings when you choose – even daily if you like. So that means you can minimise the amount of interest you pay, because you don’t have to wait until payday to make a credit card repayment.

4. Become a saver

We all have good intentions, but sometimes it’s hard to get going, especially when it comes to good financial habits. On-demand pay means you can save little and often, making it an ideal way to change those habits and build your savings pot and emergency buffer.

The end of the payday loan?

Payday loan companies have spent years now profiting from those in need. The temptation of access to money fast has made some people believe that payday loans are the answer to their prayers.

The truth, as we have seen, is that only the payday loan companies themselves have benefited. Meanwhile their customers have seen the state of their finances decline.

Using on-demand pay with Openwage means that getting some extra funds to tide you over until your next payday won’t cost the earth.

Now there’s no need to take the risk of destroying your credit rating or paying inflated interest rates. Payday loans were once the only option for many people, but those days have gone. Openwage provides a safe and secure alternative for the future. 

If you want to take control of when you get paid, you can tell your employer about Openwage. Using this, we will get in touch with your employer to help them rollout Openwage to your organisation.

The information in this article is for general information only. It does not constitute professional advice from Openwage. Openwage is not a financial adviser. You should consider seeking independent legal, financial, taxation or other advice to check how the information in this document relates to your unique circumstances.