Pay Access vs. Payday Loans

Posted - April 29, 2020

When you're strapped financially, a payday loan might seem like the only way to make bills and rent payments. In fact, 12 million Americans take out payday loans each year (according to Pew research) and spend $9 billion annually on loan fees. It’s a pretty common solution.

But is it the best solution? Let's compare the pros and cons of payday loans to alternative solutions like pay access via Spentra.

Pros and Cons of Payday Loans

Whether you call them a cash advance, fast cash, a paycheck advance, or something else, payday loans are commonplace. These loans, which are typically targeted toward people with bad/no credit or poor financial situations, provide cash immediately. Some of the good things about payday loans include the fact they’re easy, they don’t have many requirements (especially compared to other loans) and they don’t involve a credit check.

But just because something is easy doesn’t mean it’s good. Two of the biggest drawbacks of payday loans are their extremely high-interest rate (an average of 400%) and the fact they can trap borrowers in a debt cycle. (Over 80% of payday loans are rolled over or followed by another loan within 14 days, according to the Consumer Financial Protection Bureau (CFPB).) Payday loan lenders also have access to your bank account and can sue you for money owed, so that’s more bad news. You don’t even build credit with payday loans, either!

Pros and Cons of Pay Access

Pay access is a much more responsible solution. To start, just look at the word differences between “payday loans” and “pay access.” With the former, you’re borrowing from someone else. With the latter, you’re simply accessing what’s yours.

To dive a little deeper, pay access gives you early access to pay already earned—before payday arrives. With Spentra in particular, our Money Earned® feature lets employees access up to 50% of net wages at the time of request. This gives you financial flexibility while keeping you accountable by not letting you spend all of your money before payday arrives. 

Unlike payday loans, pay access has no interest rate and there is no debt cycle to become trapped in. Pay access is also available to all employees and it doesn’t target low-income or bad-credit borrowers like payday loans. While you could experience a certain amount of fees if you use your pay access card incorrectly (as well as theoretically spend up to half your earned net wages before payday, if you overuse it), there are really no major cons to pay access. To learn more about getting pay access at your company, contact Spentra today.