Financial experts call for caution regarding prepayment access applications
Instant payment apps are booming with more than 1.5 million Australians using these programs, but financial experts are calling for ‘caution’.
Financial experts have called for “caution” regarding loan applications as programs explode in Australia.
Mobile phone apps and pay-on-demand or prepaid access websites have popped up in the past 18 months with more than 1.5 million Australians using these programs.
The apps are most popular with Gen Z and Millennials, with one in five of the top users using the service to get quick cash.
Kate Browne, personal finance expert at Finder, said not all services are bad, but using them can lead to bad financial habits.
“Although on-demand payment services like Beforepay are relatively new, they are basically only short-term loans and should be treated with the same caution,” she said.
“They can be useful for a short period of time, such as if you are faced with a big unexpected expense in the middle of the month, or if your income is insufficient.
“On the flip side, having regular access to your income before payday can lead to bad financial habits, such as overspending and the inability to save,” Browne said.
Men are more likely to use the services than women, and the main players in the industry are InstaPay, MyPayNow, and CommBank AdvancePay.
Ms Browne added that there are significant differences between brands.
“There are services offered by employers, like InstaPay, that charge employers to let their employees access their payroll in advance. These services are generally the cheapest option for employees.
“Then there are third-party applications like Beforepay and MyPayNow, and services offered by banks like CommBank AdvancePay, which tend to be more expensive. “
The Consumer Action Law Center had criticized the request. His cynicism revolved around the system’s lack of regulation and high interest rates.
Interest rates can reach five percent of the amount borrowed. This means that you could pay $ 25 for a loan of $ 500.
Financial Rights Legal Center policy officer Julia Davis told Nine Newspapers in July that the interest rates charged by MyPayNow were “extraordinary.”
“It’s up there with payday loans,” she said. “These guys mean they’re not sharks, but anyone would say a loan with 200% interest is outrageous, it’s shark territory.”
“Anyone who sets up a business that falls through the cracks of all of our responsible lending laws is doing it on purpose, they call it innovation, but they are avoiding regulation and just taking advantage of a loophole. “