Would You Use Beforepay? (Pay Advance)

Lassetlite on 03/06/2021 - 08:27

I was browsing the app store the other day for budgeting apps and came across a budgeting app that also enables you to access a small part of your pay in advance (like $100 at a time) (https://www.beforepay.co), in exchange for a 5% transaction fee. You then have 4 weeks to pay it off - and if you don't pay it off, they cut you off the service and you can no longer borrow any more (as well as having it presumably impact your credit score).

I've got a credit card, and can usually manage my payments so that it's paid off within the 55 day interest free period, so I personally don't really need the service - but I was wondering how OzBargainers think about it relative to other sources of short term advance.

My thinking is:

  • 5% one off fee for a few weeks is probably not worth it if you have a credit card AND you can manage your spending to avoid interest and late fees
  • there are probably a lot of people out there that don't have credit cards, but could use the pay advance functionality every once in a while
  • it might work out cheaper than a credit card if it's not something you use super often, when you consider annual fees and late charges (my credit card annual fee is $200 and that would be equal to the transaction fee on $4K worth of loans - and if I miss a payment, there's a $10 flat fee every time, which adds up)
  • it seems like if you use it and you're in a tough spot (can't pay it back for whatever reason), it's better than something like a credit card or other type of loan which accumulates interest which snowballs and compounds
  • it seems to have a different business model to credit cards, which make all their money from people that can't afford to pay back their loans and incur late fees and interest - this would only make money if you pay it back each time and can continue to use the service

What are your thoughts? Would you use it / does it make sense to you?

p.s. While i don't use the pay advance service, I have the app and use it to keep track of bills and my spending/budget

Poll Options

  • 2
    Yes - I would use it
  • 0
    Maybe - I might consider switching from my credit card
  • 9
    No - I don't have a need for it
  • 67
    No - It's a rip off
Financial

Related Stores

Beforepay
Beforepay

Comments

  • jimbobaus on 03/06/2021 - 08:28
    +24

    This is basically pay day lending…. so best to avoid at all costs

    • Quantumcat on 03/06/2021 - 08:34
      +6

      This!
      I cringe when I see that loan shark ad with the clumsy guy in a superhero outfit.
      Stay clear.

    • assetlite on 03/06/2021 - 08:39

      I've never used payday lenders before - do they charge interest, or is it a flat fee?

      I've always thought that they made money by lending to people who desperately needed money but couldn't pay it back, and then charged super high rates and harassed people to get whatever they can as their debts accumulate.

      This seems like you know what you're getting into from the get go and it's not the same risk

        • assetlite on 03/06/2021 - 09:48

          This is interesting - thank you.

          Beforepay vs payday loans: What’s the difference?
          Beforepay provides an alternative to traditional ‘payday loans’ or small amount loans. Payday loans generally let you borrow up to $2,000 with a repayment period of anywhere between 16 days and one year. According to Moneysmart, payday loans tend to have “a lot of fees” and you often end up having to pay back a significant amount more than you borrowed.

          Beforepay repayments will almost certainly cost you less than a payday loan would, but keep in mind that it is still a loan and you will need to make the repayments plus pay the fee.

      • brendanm on 03/06/2021 - 10:28
        +1

        People that need to borrow $100 from a dodgy mob like this obviously aren't that financially savvy.

      • toomuchdogfur on 03/06/2021 - 10:33
        +6

        Even if a borrower is responsible with their repayments, payday loans encourage and perpetuate an unhealthy cycle of always being "behind" their actual pay. By their very nature, payday loans are targeted at people who are only just getting by.

        Person borrows $500 to cover their "unexpected expense", incurs $25 fee
        Person now has $525 less next month to live on

        Now either:

        Person scrimps and scrapes to save that extra $525 and pay off the loan. Prays real hard that no other "unexpected expense" occurs this or next month… else start the cycle again.

        Or:

        Person's daily expenses remain the same as every other month. Pay off the loan but immediately start the loan cycle again to cover these expenses.

        This cycle would result in $300 of fees each year being charged despite only providing a rolling credit facility of $500 - equating to an eye-watering 60% p.a. interest rate.

        IMO the worst effect though is that the borrower is constantly $500 behind their actual pay. This constant pressure means that they are unable to accumulate savings to buffer against these "unexpected expenses"… and as anyone who has been living for long enough knows, "unexpected expenses" are an inevitability no matter how on top of things you are.

    • netjock on 03/06/2021 - 10:46

      5% fee on especially toward the end of the pay cycle. Say 5% for 15 days over a whole year you are paying 100% interest. Nuts.

  • Cluster on 03/06/2021 - 10:22
    +1

    5% over 4 weeks is a rip off. You can easily borrow money for a year and pay 5% on a personal loan.

    Another way to look at 5% for 4 weeks is it's 60% if you keep using it every month.

    If you're paying $200/pa for a credit card, that's on you. There are plenty of alternatives that charge $0 annual fees and provide a 55 day interest free period.

  • mskeggs on 03/06/2021 - 10:56
    +2

    I wouldn’t use this service, but i am sympathetic towards people who have limited financial alternatives.
    If you have no family/friends to help in a tough situation, and traditional credit is unavailable because you work irregularly or similar, there can be no alternatives when an urgent unexpected expense emerges.

  • spackbace on 03/06/2021 - 11:28
    +1

    Services like these are now checked with credit checks. Multiple Afterpays, Zip etc. can basically fk up your chances of borrowing for an asset if you needed to

    • bobbified on 03/06/2021 - 12:29

      Apparently this one claims to not affect the person's credit score.

      • spackbace on 03/06/2021 - 12:40
        +2

        Can still affect lending ability. Car financiers can ask for copies of bank statements, and they'll question multiple pay-day etc lenders. Have seen it happen

        • bobbified on 03/06/2021 - 12:43
          +2

          They do, but banks don't often ask for more than a few months worth of transactions so something like this could "disappear" quite quickly. Whereas, if it went through the credit record as an application or enquiry, it would be there for much longer.

  • IIGnomeII on 03/06/2021 - 13:12
    +1

    Regardless of the amount, regardless of the repayment cycle and regardless of the interest these sorts of services should be avoided. It is pay day lending in a different coat.
    To me while they appear harmless on the surface, too many people would fall into bad financial habits and it would essentially become a gateway to bigger financial problems.

    The adage of 'if you don't have the money available to buy something - don't' should be the primary frame of thought.
    I understand there are some instances people need money fast to deal with a life event but there are other financial systems around that can fill the gap in emergencies that I would preference way before this. Credit cards or personal loans for example.

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