Want to cash your paycheck before payday? There is an app for it

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Waiting two weeks for pay is a pain. Isn’t there a better way?

According to startup Activehours, the answer is yes. Their app allows you to withdraw money from your paycheck before payday. You enter information about your job and your bank account, you request a portion of your income, and it is sent to you the next day. It’s free too — the service simply suggests that you “tip” what you think is reasonable. On payday, Activehours withdraws the same amount you have been advanced (plus any tip you have authorized) from your bank account.

Sounds good, doesn’t it? Before you get too excited, determine if you are an eligible user.

You have to meet a multitude of criteria: be 1) an hourly worker, who 2) peak in and out using electronic timesheets, and 3) get paid by direct deposit. That includes employees of big companies like Apple, Starbucks, and Best Buy, but leaves a lot of people out. Employees, for one, and people without a bank account. You’re also out of luck if your employer uses old-fashioned paper timesheets or pays you by check, cash, or prepaid card. It turns out that a large and growing number of employees are paid with a prepaid debit card and cannot use the app.

If you qualify, this can be useful if you are short on cash and need it to hold you back until payday. As the saying goes, timing is everything.

“Each year, over $ 1,000 billion in hourly wages are withheld for two weeks because of the way pay cycles work today. Yet more than half of hourly workers in the United States make a living from it. paycheck to paycheck or borrow money to stay afloat, “Activehours founder Ram Palaniappan said in a statement in May when the app launched. “If you work every day, why can’t you get your paycheck every day? “

Palaniappan maintains that its service beats the alternatives. For example, incurring an overdraft fee typically costs you around $ 35. And payday loans, which also give you a cash advance on your payday, often charge interest rates above 300%. Previously, banks offered expensive loans similar to payday loans called deposit advances, but have largely phased them out.

It’s hard to disagree here.

Activehours “clearly solves the cost problem,” says Tom Feltner, director of financial services at the Consumer Federation of America, noting that tips are “purely optional” and you’re not going to shell out triple-digit interest rates .

Plus, the basic protections built into the app mean you don’t have to borrow too much or sink into a deeper financial hole. The app is designed to “unlock” only the money you have already earned. You can’t ask for the money you hope to earn in the future or ask for a supplement because you really need it. It must be money owed to you for the hours you worked but haven’t been paid for yet, end of story. How do they know? A photo of your electronic timesheet is required, with name and hours worked. The service also calculates your take-home pay after taxes and deductions, so it doesn’t lend you money that will go directly to Uncle Sam rather than your bank account on payday.

There is a daily limit of $ 100, plus an additional limit for the pay period, which Activehours says varies by user and is adjusted over time. Long story short: you can’t get your entire paycheck before payday, only part of it.

These measures help encourage responsible borrowing, but also ensure that Activehours is repaid for the money it lends to you. Chances are, your employer will respect their obligation to pay you for your work. If you, the employee, log in and empty your account on payday before Activehours can access it, they lose the money. Their terms say they will ban you from the app if that happens.

For people who only occasionally run a little before payday, Activehours could prove to be a useful and wallet-friendly option. A recent CFPB report found that the majority of people who overdrafted their bank accounts did so for amounts of $ 24 or less.

But logging into Activehours week after week to ask for money is a sign of bigger financial problems. After all, the service doesn’t change how much you have each month to pay your bills, only when you receive the money.

“It may help bridge the gap for a few days or a few weeks,” says Feltner, but it “won’t solve long-term financial instability.”

You essentially borrow from your future self by “giving up a future salary in exchange for an immediate advance,” Feltner adds.

If you need an immediate advance for an emergency, don’t rely on Activehours. The app is not active at all times of the day, as the name suggests. You can’t withdraw money on weekends or at night, and even workweek requests take at least a day to process. This calls into question the app’s usefulness as a real-time service that gives you on-demand access to your income. For example, let’s say you request money on Friday night, it will take until Tuesday to access your account. This is in stark contrast to the extended hours at payday loan stores, 24/7 online payday lenders, and automatic bank overdraft coverage. These services are more expensive, but in real emergencies they are more readily available.

Activehours, which recently announced $ 4.1 million in seed funding from Ribbit Capital and Felicis Ventures, plans to become available to more types of users. He is also testing a “Lightening Pay” feature that would send funds in seconds.

Right now, the biggest draw to Activehours is the fact that it’s free if you want to. It may also be his biggest kryptonite.


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