Beware of Unregulated “Quick Fix” Payment Advances

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Australians have been warned against using increasingly popular “pay in advance” services over concerns they may be exposing themselves to excessive debt and unregulated products.

Pay-in-advance services offer workers access to their pay in advance, and users can withdraw between $50 and $2,000, which they then repay, along with a flat fee or percentage fee, to the lender on payday. The services work similarly to payday loans, though with fewer fees and shorter payment terms.

Deputy Treasurer Stephen Jones has said Labor will seek to regulate buying now, pay for after-services and pay industry up front.Credit:alex ellinghausen

A number of large advance payment companies have emerged recently, including Beforepay, Australian Stock Exchange-listed MyPayNow, and Commonwealth Bank’s AdvancePay. Their number of clients has been on the rise, fueled by the rising cost of living and higher interest rates.

However, despite their growing popularity, cash-strapped workers have been warned to avoid these services.

A spokesperson for the financial regulator the Australian Securities and Investments Commission Money Smart The financial advice division said that while they may seem like a “quick fix,” users should look at other options.

“If you need money quickly, a pay-in-advance service may seem convenient,” the spokesperson said. “[However]using an advance payment service means you will have less money on your next payment and, if you overuse it, it can be difficult to keep up with payments when managing other financial commitments”

Please note that each time you use the service, you are charged a fee. While advance payment providers have limits on what they can charge you, your bank may charge you a fee if you don’t have enough money in your account to cover your payment.

Borrowing money through an advance payment service may also affect your ability to borrow money, such as a home loan, in the future, as lenders often take a dim view of the advance payment and buy now, they pay for services later by evaluating a borrower’s spending habits.

Another key ASIC concern is that pay-in-advance services are unregulated and operate under a loophole in credit laws that allows providers to bypass the need for credit checks or hardship processes.

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