How Salary Finance Is Overtaking the Need for Short Term Loans
Interest-free salary finance is replacing the need for short-term loans as it allows individuals instant access to their finances without the need to pay through-the-roof in interest rates.
Salary Finance is a relatively new payment method that enables employees to withdraw money from their existing wages. It is a way for employers to provide financial support to their employees. There are many types of salary finance including cash advances or withdrawing down funds before payday.
To give it a definition, salary finance allows employees to earn money in real-time. That is, they can withdraw the money they have earned to date. Typically, salary finance is managed at a company-level via an integrated software. Through this, employees can work together with companies to take out money ahead of their payday. For example, if payday is the end of every month, and an employee wants to take out money midway through the month (e.g. 15th), they can take out 15 days worth of income.
There are a handful of salary finance providers in the UK including Wagestream, Hastee, and one of the largest called Salary Finance, who acquired Neyber last year.
On-demand pay allows employees to withdraw their pay as they earn it. Subsequently, on-demand pay allows employees to line up their income with their expenses. This in turn helps with money management and long-term budgeting. Employees are able to access some of their accrued wages sooner than the scheduled pay date. Yet, unlike payday loans or other lending schemes, employees are not expected to pay interest. Nor are they in debt as they are accessing their own money.
One of the best elements of salary finance is that it is interest-free. Employees are able to withdraw money ahead of time with no need to pay interest. Typically the only incurred cost is a small withdrawal fee per transaction. Because the salary advances are funded by the employer and the salary finance company, employer’s cash flow remains unaffected.
Better Money Management
Figures from a study by EY suggest that 35% of individuals in the UK and US are unable to meet a payment between their pay period and that individuals struggle to meet a financial obligation an average of 3 times annually. Schemes such as salary finance can ease financial pressures, allowing employees immediate access to their pay. This in turn avoids taking out loans with sky-high interest rates and entering a negative cycle of debt.
With the events of last year, employee benefits are becoming more focused on financial security. As such, there is a higher demand for schemes such as salary finance from an employee’s perspective. Instant access to salary allows employees the ability to cover emergency payments, helps with long-term budgeting, and assists with savings.