“Pay-as-you-go” apps advertise themselves as a quick and easy way to get the money you’ve already earned. But they can be a “slippery slope,” warns a financial adviser.

Pay-as-you-go apps or payday advance apps allow you to receive a portion of your salary immediately, rather than waiting for your next payday.

It is basically a type of short-term loan and the money you access is usually deducted from your subsequent pay cycles.

But Rob Benton, financial adviser at the National Debt Helpline, says people don’t always see it as debt and that can be problematic.

“Pay-as-you-go apps create this mental image that you’re accessing something that’s yours, but it’s debt,” Benton told Canstar.

“They don’t give you your salary, they give you a loan and they make you pay for it.”

Pay-as-you-go applications may be offered by third-party providers (such as Beforepay and MyPayNow), but some payday advance services are also offered by employers, as well as services offered by banks (such as CommBank AdvancePay) .

Customers usually pay fees, instead of interest. This is usually around 5% of the amount you advance. For example, if you receive a $500 advance, you may be charged $25. If you do this regularly, it can get expensive.

“For products with a 5% fee used weekly, that’s theoretically a 260% fee per year,” Benton said. “If you use it fortnightly, it’s 130% per year and it’s still a lot more expensive than the other alternatives.”

Pay-on-demand products can be a “slippery slope” and people can rack up a significant amount of debt, Benton said, especially when they have multiple debts like payday loans, buy now pay later. and credit cards.

Some customers may also use pay-as-you-go products to pay for day-to-day expenses. Beforepay founder Tarek Ayoub previously said Yahoo finance that most of their customers spend the advances on groceries and transportation.

Like buy now, pay later, pay-as-you-go products aren’t currently covered by the National Credit Code because they don’t charge interest on repayments. This means consumers miss out on protections such as affordability checks, financial hardship assistance, and access to external dispute resolution.

“Where you don’t have consumer protection there’s a much greater chance that people will struggle and they’re not protected by the laws they have with credit cards and personal loans,” Mr. Benton said.

Most services do not do a credit check on you and instead require proof that you are regularly employed and meet their minimum income requirements. Some services will accept Centrelink payments as part of your earnings.

Pay-on-demand apps are a bit like payday loans, as some reviewers have pointed out. With payday loans, customers may be charged a set-up fee of 20% of the amount borrowed and a monthly fee of 4% of the amount borrowed. Interestingly, the president of MyPayNow was revealed to be a former director of a payday loan company, Sunshine Loans, which agreed to refund nearly $700,000 to customers it overcharged.

Mr Benton says he would like to see stronger consumer protections, and advocacy groups like the Consumer Action Law Center and the Financial Rights Legal Center have also called for regulation of the sector.

There are a number of pay-as-you-go services available in Australia. This includes paid on-demand apps that consumers can access themselves, as well as services offered by employers.

We’ve compared some popular pay-as-you-go apps, as well as CommBank’s payday advance offer. We focused on direct-to-consumer applications, rather than services offered by employers.

• Costs: 5%.
• Amount of the loan: $50 to $1,200.
• Refund options: Up to four pay cycles.
• Eligibility: Must be employed and earn more than $300 per week after tax.

• Costs: $5 for every $500 (or part thereof). If you do not repay on time, you will be charged interest at the excess debit interest rate (currently 14.90% per annum) and your account will be considered overdrawn.
• Amount of the loan: $300 to $5,000.
• Refund options: Next pay date.
• Eligibility: Must have regular income paid into a CommBank account and earn enough income to reach the minimum limit of $300.

• Costs: 5%.
• Amount of the loan: $50 to $1,250 (up to 25% of salary).
• Refund options: Next pay date.
• Eligibility: Must be employed and earn at least $450 per week after tax.

Source: Provider websites.

Paid on-demand apps can be expensive if used regularly and there may be cheaper alternatives you could consider.

If you use a pay-on-demand product more than once or twice, Benton recommends contacting a financial advisor.

“It’s a free service and they can help you fix underlying issues or help you access other, cheaper options,” Benton said.

If you are receiving Centrelink payments, Mr Benton said you might consider requesting an advance payment. For example, people who receive JobSeeker can apply for advances between $250 and $500. You then repay it later from your Centrelink payments.

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