A Better Way to Pay: Choosing an Alternative to AFS
Millions of Americans use alternative financial services (AFS), such as installment loans or payday loans, to manage monthly expenses during periods of income volatility or financial insecurity. They don’t want to, but the reality of living paycheck to paycheck means they have to find ways to meet unexpected expenses even if it means setting themselves up for cyclical debt.
Americans living paycheck to paycheck deserve a better option than AFS, which come with high fees and interest rates that routinely harm their financial stability. Instead, workers need a platform that benefits their financial health and security.
As the leading provider of Earned Wage Access (EWA), PayActiv answers that need. Backed by an award-winning platform, PayActiv partners with employers across the nation to provide financial wellness services to over one million workers, primarily through instant access to their already earned yet unpaid wages. Unlike AFS, PayActiv is dedicated to the financial wellness of the user, so they have made sure that accessing funds doesn’t require a loan and workers never pay interest.
Each AFS borrower’s story is unique, but everyone working for a paycheck in America today is vulnerable, whether they’re a young person without sufficient credit history to qualify for a traditional loan, a family that is underbanked or unbanked, or a person enduring financial stress due to a job loss or unexpected medical issue. Or they may be someone surprising, such as one of the many first-time AFS borrowers in 2019 who were married, held bachelor’s degrees and carried very little student debt, and yet still needed help.
Why are so many people in such a variety of circumstances turning to AFS? Because the majority of Americans are living paycheck to paycheck—they have an income, but it’s not a lot. Over a quarter of AFS users have an annual income between $20,000 and $30,000, so they are always living paycheck to paycheck. For 41 percent of Americans, meeting an unexpected expense of $250 simply isn’t feasible.
With little or no wiggle room in the budget, it’s not surprising that nearly half (46 percent) of online single-pay loans were for amounts between $200 and $300. People choosing installment loans tend to borrow higher amounts, with about 25 percent borrowing $500 or more. These relatively small sums grow quickly when people use AFS because interest rates are high. In ten states, lenders can charge an annual interest of 85 percent or higher on an unsecured, six-month loan of $500.
For workers living paycheck to paycheck, having instant access to even just $250 of their wages can keep them from turning to AFS. With instant access, workers meet their expenses without paying disproportionate interest rates or late fees, freeing themselves from the cycle of accruing further debt.
PayActiv is proof that instant access works, as users of this financial wellness platform have saved over $240 million by avoiding overdrafts, payday loans, and late fees. For one PayActiv user, EWA has been a lifeline—it has allowed her to pay for her autistic son’s medications when he needs them rather than borrowing money between paychecks. “I was paying almost $100 a month in fees for something that I considered an emergency,” she admitted. “With PayActiv, I don’t have to worry about that because it comes out of my paycheck.”
Employers can make a real impact by choosing the right financial product to achieve financial health for their workers living paycheck to paycheck.
 Alternative Financial Services Lending Trends: Insights into the Industry and Its Consumers (Clarity Services Inc., 2020), 22, https://www.clarityservices.com/wp-content/uploads/2020/04/2020-AFS-Trends-Report.pdf.
 Alternative Financial Services Lending Trends.
 Janet Nguyen, “Here’s How the COVID-19 Pandemic Has Affected Americans’ Paychecks and Working Hours,” Marketplace, May 5, 2020, https://www.marketplace.org/2020/05/05/covid-19-economy-anxiety-paychecks-working-hours/.
 Alternative Financial Services Lending Trends, 10.
 Ibid, 9.
 Carolyn Carter, Lauren Saunders, and Margot Saunders, Predatory Installment Lending in the States: 2020, National Consumer Law Center, February 2020, https://www.nclc.org/images/pdf/rpt-InstallmentLoans-feb-2020.pdf.
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