New Payday Loan Service Charges Zero. Too Good to Be True?

Photo (cc) by HelenCobain

Here at Money Talks News, we’re not big fans of payday loans.

In fact, they suck. They may be worse than you thought. And they most definitely top our list of the dumbest ways to borrow money.

So why are we devoting a whole article to the latest payday lender? Because it works under a slightly different model, one that theoretically doesn’t suck. That’s because it doesn’t require you to pay anything in exchange for receiving an advance on your paycheck.

Money Talks News finance expert Stacy Johnson talked to Ram Palaniappan, CEO for Activehours, to find out more. Watch the clip to see what Stacy thought about the service and then keep reading to decide whether the website will work for you.

Activehours: We’re not a payday loan service

While what Activehours does is lend money against a future payday, they don’t consider themselves to be payday lenders. Instead, they say the service they offer simply allows for better cash flow management.

Here’s part of a statement from an Activehours spokesperson:

The Activehours service allows users to access their pay on demand. We let workers control their own pay day so that they aren’t forced to manage their budget around the pay cycle that their employer decides.

With the app, users can access the pay that they’ve already earned. Activehours simply allows them to access it faster than they can through their employer, who is usually bogged down by outdated accounting and payroll tools. By giving workers more flexibility around when they are paid out for their work, we believe we help people manage their cash flow to better live within their means. If a bill is due and payday is 5 days away, an Activehours user can get access to the money that their employer owes them, and use it to avoid paying a bill late or incurring an overdraft fee which would then eat into their budget.

However you describe it; payday loan or cash flow management app, the service allows you to access cash you’ve earned, but not yet been paid.

The basics of Activehours

At its core, Activehours works on the same principle as a payday lender. Cash-strapped individuals can get a short-term loan to tide them over until their next paycheck arrives.

However, the details are a little different from what you might see from a traditional payday lender. Here’s a rundown:

  • Activehours is available only to hourly workers who have direct deposit and online or computerized time sheets. Uber and Lyft drivers are also eligible.
  • The service verifies time sheets, calculates a “take home” hourly rate and makes advances available based upon hours that have not yet been paid out.
  • Individuals can cash out their available hours as needed. Not all hours will be available initially, and workers may be able to request larger advances once they become established users of Activehours.
  • Money is direct deposited into a bank account. Repayments are automatically withdrawn from the same account.
  • Activehours does not charge any interest or fees. Instead, it asks users to provide a tip, in the amount of their choosing, for the service.Tipping could get costly

That last point is what really sets Activehours apart from the competition. And the ability to choose if and how much to pay for the service could make it seem as though this payday loan is a bargain.

However, that may not always be the case. As Stacy points out in the video, a $10 tip for a $100 loan over a two-week period could end up being the equivalent of paying 260 percent interest. Still, it beats paying a $35 overdraft fee.

If you think you’re going to need to dip into a source of emergency cash on a regular basis, you may be better off finding a low-interest credit card or one with low cash-advance fees (assuming you pay it off as soon as you’re paid). But even that isn’t ideal. And that brings us to our final point.

Time to stop living beyond your means

The real problem with Activehours isn’t that you might give too big of a tip and end up paying what could translate into an outrageous interest rate.

No, the real problem with Activehours is that it serves as a crutch to let you live beyond your means. And that’s not something unique to Activehours. You could say the same about other payday lenders, as well as any credit card upon which you regularly carry a balance.

They all give you a bandage to place over the symptom of a much larger problem. That problem is usually that you either earn too little or spend too much.

In a perfect world, you’d have money in the bank to cover life’s little emergencies, and you wouldn’t have to scramble to find someone to give you cash today. However, when you spend too much or earn too little, it may feel impossible to ever get money to stay in the bank. You need to do some serious soul-searching to decide how best to tackle the problem.

We have plenty of advice for you here at Money Talks News. If you want to save money, start by reading these articles:

On the other hand, if you want to make more money, try these articles:

As for Activehours, if you need a payday loan, it may be your best bet right now. Just be careful about the amount you tip. To learn more about using Activehours or other personal loan services, visit this page of our Solutions Center.

However, we hope you’ll take stock of your financial situation, create a budget that works and walk away from payday loans forever.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

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