I live in a fairly low-income urban neighborhood, and payday loan venues abound. They are everywhere because these types of loans cater to the millions of Americans who live paycheck to paycheck. They are barely making it, and a single disaster can make it impossible to pay that month’s rent.
Payday loans are a problem for many reasons. For example, a Consumer Financial Protection Bureau study found that most payday loan borrowers end up paying more in fees than they originally borrowed. You could borrow $ 375 to get your car fixed and get to work. But you could end up paying more than double by the time you get the loan paid off.
And, of course, these loans create a dangerous borrowing cycle to get out of trouble. But then you have to pay them back fast, which makes your next paycheck even tighter. So they keep squeezing your paychecks until you can’t pay your bills and payday loans anymore.
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Of course, the long term solution here is to get out of the paycheck-to-paycheck cycle. And believe me, I know it’s harder than it looks. And as you work towards the goal of building an emergency fund, emergencies can still happen. And they can leave you in dire need of cash.
What is Earnin?
This is why companies like To win (formerly known as Activehours) provide creative alternatives to payday lending. With this app you can cash in your worked hours before payday. But unlike a payday loan, which charges outrageous fees every time you use one, Earnin doesn’t charge any fees.
Does that sound crazy? It is sort of. But it seems to work for some people. Here’s how it works, the caveats you should be aware of, and whether or not it’s right for you.
How does Earnin work?
Basically, Earnin works on a pay-per-view model and is available for Android and iOS devices. You withdraw up to $ 100 per day depending on the hours you actually worked. Then you pay a “tip” on top of the withdrawal, usually a few dollars or up to around $ 15. This is a good deal compared to the fees and interest you will be charged on a traditional payday loan.
The catch is, you can only use Earnin if you’re a salaried, hourly, or on-demand employee. The self-employed, teleworkers and those with multiple jobs will not find what they need here. You must also receive your paycheck by direct deposit to use Earnin.
Earnin must be able to track the hours that you work. For hourly workers, you can upload a photo of your daily timesheet or connect the app to your company’s online timesheet system. If you are an employee, you can turn on location tracking so that Earnin can verify that you went to work that day. If you’re an on-demand worker, you can upload photos of your task receipts, or the app automatically downloads Uber ride receipts if you’re a driver.
When you need the money, Earnin checks how many hours you worked for that paycheck. You will receive the money the next day if you request a weekday or the second working day if you request a weekend. A few banks even support immediate execution of Earnin deposits.
On payday, Earnin deducts the amount from your paycheck. You can also add a tip, usually between $ 0 and $ 14, to this withdrawal.
What are the limits ?
Of course, no one will let you borrow the value of a paycheck until payday. And Earnin has his limits. All users can withdraw up to $ 100 in a single day. But individual users will have varying limits per payment period, between $ 100 and $ 500.
Your pay period withdrawal limit depends on your financial behavior, income, and other factors. If you use the app well and earn a lot of money, you can borrow more over time.
If you have trouble keeping track of your bank accounts, you could accidentally overdraw them. This can lead to high fees. Earnin offers a Balance Shield feature meant to protect you from this. It can be linked to your checking account. When the balance drops below $ 100, it will automatically send you a loan of $ 100.
The Balance Shield works based on your daily maximum borrowing levels and your pay period and the disposable income you’ve added by tracking your hours. So if your pay period limit is $ 100 and you’ve already taken it, you might be out of luck. But it could be a useful feature if you don’t have any money in savings or your bank doesn’t offer a similar feature.
What you need to know about Earnin
As with any financial product, Earnin has its drawbacks. Here are some things to consider before signing up for the app:
- Borrowing limits: Borrowing limits for Earnin are lower than for payday apps and some other quick borrowing options. This can be a problem if you’re in a rush and need more than a few hundred bucks to float you through payday.
- Not everyone can use it: Depending on the type of work you do and how you get paid, you may not be able to use Earnin at all. It is definitely something to consider before signing up.
- It is linked to your account: Although Earnin uses strong encryption to protect user data, it stores a large portion of your data and connects to your bank account. This can be a little scary for some users, so make sure you understand what data they collect and how they store it before signing up.
- Could still be expensive: Even if you don’t tip every time you use Earnin, you still pay to access your money when you tip. And those dollars can add up faster than you think.