Sometimes we are faced with sudden, unexpected expenses, such as home or car repairs, medical bills or extra food or transport costs. Ideally, we’d all have a buffer or emergency savings stashed away to cover these costs, but unfortunately, in reality many Aussies do not. According to Canstar’s 2020 Consumer Pulse Report, more than one in five Aussies (21%) don’t save money each month. Of those that are not saving anything, 68% said they are living pay cheque to pay cheque.
So, if you are among those in need of some quick cash, where do you go for help? One potential option you may be considering is a pay-advance service such as Beforepay. While this option may give you access to money sooner, there are some potential drawbacks you should consider before choosing to use the service.
In this article, we cover:
What is Beforepay?
Beforepay is an app-based lending service that gives you access to credit based on a portion of your salary before payday. You then have four weeks to repay the loan, plus a 5% transaction fee. Unlike other buy now pay later models such as Afterpay and Zip Pay that let you borrow money for specific transactions, Beforepay lends you the amount as a lump sum cash advance that goes directly into your bank account.
Features of the Beforepay app
At the time of writing, Beforepay says some features of its app include:
- Maximum loan amount: Up to $300 per pay cycle, depending how much you earn and your repayment history with Beforepay.
- Minimum loan amount: $50
- Loan fees: Fixed 5% transaction fee on any money you borrow using the app, payable on your next payday.
- No interest, ongoing costs or rates, aside from the transaction fee.
- No late fees, although if you miss a payment you will not be able to borrow any more money until it is fully paid back.
- Receipt of money may take up to 12 hours, depending on your bank.
You can track your income and expenses using the Beforepay app by linking it to the bank account your salary is paid into. From within the app, you can view your income, spending habits, upcoming bills and outstanding repayments and let the app create budgets for you automatically, based on your past spending. You can set up your account to receive notifications and updates on your spending and saving progress.
How do I apply to use Beforepay?
To use Beforepay, you need to download the app to your smartphone and register for an account using your email address or Facebook credentials. Beforepay says it may also ask for some personal information such as your name, age range, mobile number and the state or territory you live in. You can then connect the app with your bank account and your work details (if you intend to use the ‘cash out’ feature to borrow money).
Beforepay advises that to use this ‘cash out’ feature, you must meet certain eligibility criteria, which it lists on its website. Some of these include that you must be paid a regular salary (weekly, fortnightly or monthly) of at least $300 after tax each week. It may also ask you to send through documents to verify your identity before you can gain access to the feature. Beforepay says self-employed people and business owners are not eligible, nor are people who work from home or receive a majority of their income from Centrelink.
Beforepay says it does not run credit checks or affect your credit score, but as part of its own assessment process it does analyse the income and expenses connected with your bank account, to ensure you are able to make repayments.
How does Beforepay work?
If you meet Beforepay’s eligibility criteria and decide to use it to borrow money, Beforepay will lend you the amount you choose and qualify for, between $50 to $300 per pay cycle, and allow you four weeks to repay it. On its website, Beforepay says the app works in three steps:
- Connect the app to your bank account: Link the Beforepay app to the account where you receive your salary so the app can monitor your pay schedule and spending.
- Choose your amount: Withdraw between $50 to $300 per pay cycle to receive it as a loan in your bank account.
- Pay it back: You have up to four weeks to repay the loan amount plus a 5% fixed transaction fee. You can repay the full amount when you receive your salary, or opt to pay it off in instalments over up to four weeks.
→ Related article: Is getting paid before payday too good to be true?
Pros and cons of Beforepay
Using a pay-advance service such as Beforepay may prove helpful in some instances, but there are also some drawbacks to be aware of.
Some potential pros of Beforepay:
- You can access money quickly when you need it, rather than waiting until your payday.
- You pay a one-off fee each time you borrow money, with no other ongoing fees.
- The fee may be lower than fees attached to other products, such as payday loans.
- There are no late fees, however you will not be able to use the service again until outstanding amounts have been repaid.
Some potential cons of Beforepay:
- There are limits to the amount of money you can access.
- You pay a fee to access the money, that you wouldn’t pay if you are able to wait until your payday. This fee could be up to $15 per pay cycle if you borrow Beforepay’s maximum possible limit each time.
- Using this service may be a “band-aid solution” as Canstar’s Editor-at-Large Effie Zahos says. “If you don’t have enough cash flow to get your through to your next pay and no buffer to handle any unexpected expenses that crop up, it could mean there is an underlying issue,” she warns.
What are some similar apps to Beforepay?
Some apps that offer similar pay-advance lending services to Beforepay include:
- CommBank’s AdvancePay
- Employment Hero’s InstaPay
These services vary in the amount they lend, the fees they charge and how they operate (for example, some require activation by your employer), so make sure you read the terms and conditions of these services carefully before choosing to use them.
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. Moneysmart suggests that if you are struggling to pay any bills or fines, you should explore alternatives to a payday loan, including talking with a free financial counsellor.
What are some alternatives to using Beforepay?
Before taking out a loan with the Beforepay app, you might want to consider the following alternatives if you are eligible:
- The No Interest Loan Scheme: If you have a Health Care Card or receive an eligible concession, such as the Age Pension or Disability Support Pension, you may be able to take out a small no-interest or low-interest loan. These have little to no interest and have no additional fees or charges.
- Centrelink advance payment: If you receive a regular Centrelink benefit, you can apply to receive an advance payment. You repay the amount out of your future Centrelink payments and there is no interest, fees or charges.
- Contact your service providers: If you are struggling to pay your bills, it may be a good idea to talk to your service provider about possible payment alternatives. You may be able to work out a payment plan for your bills so that you can make the repayments in installments.
- Ask your bank for support: If you are struggling financially, you can also approach your bank or financial institution directly to ask for advice and support or to negotiate a payment plan. Many banks offer financial hardship support as part of their services, but keep in mind that the advice on offer may not always be independent.
- Talk to a financial counsellor or seek free, independent financial advice.
Main image source: Burdun Iliya/Shutterstock.com