Wage Advance vs Payday Loan: Which Costs Less?

When an unexpected expense arrives before payday, you might start comparing different ways to cover the shortfall.

Two options you may come across are wage advances and payday loans. Although both provide access to money for a relatively short period, they work differently and can have very different costs.

For a small amount borrowed for a short period, our wage advance can cost less than a payday loan using the common fee structure described by Moneysmart.

That does not mean a wage advance is free or automatically suitable for you. Both options involve borrowing money that must be repaid, so it is important to compare the total cost and consider how the repayment will affect your future budget.

Here is what to look at before making a decision.

Wage advance vs payday loan: which generally costs less?

In a straightforward short-term comparison, our wage advance generally has a lower initial cost than a payday loan charging the common fees identified by Moneysmart.

We currently charge:

• A fixed fee equal to 5% of the amount advanced

• Interest at 24% per annum on the outstanding balance

• Interest for no more than 62 days

For example, our published pricing shows that a $100 advance held for seven days would involve a $5 fee and $0.48 in interest, making the total repayment $105.48.

By comparison, Moneysmart says most payday lenders charge an establishment fee equal to 20% of the amount borrowed and a monthly fee equal to 4% of the amount borrowed.

The important point is to compare the total amount you will repay rather than focusing on one percentage or fee in isolation.

What is a wage advance?

A wage advance, also known as a pay advance or pay-on-demand service, allows you to borrow money based on a portion of your expected wage before your regular payday.

The amount you borrow is then repaid according to the agreed repayment arrangement.

With us, approved customers can access up to 25% of their net pay, subject to a maximum advance of $2,000. Your available amount depends on your verified income, our assessment and our eligibility criteria.

Our service is a form of short-term credit. It is designed around your wage and repayment cycle rather than operating in the same way as a traditional payday loan.

A wage advance does not give you additional income. It brings money forward, which means you will have less money available later once the advance, fee and applicable interest are repaid.

What is a payday loan?

A payday loan is commonly used to describe a Small Amount Credit Contract, or SACC.

According to Moneysmart, payday loans allow you to borrow up to $2,000 and generally have repayment terms ranging from 16 days to one year.

Their costs are commonly structured around fees rather than a conventional interest charge.

Moneysmart states that most payday lenders charge:

• An establishment fee equal to 20% of the amount borrowed

• A monthly fee equal to 4% of the amount borrowed

• Potential default charges if repayments are missed

The maximum establishment and monthly fees are regulated, although the exact amount you pay will depend on the lender and contract.

Wage advance vs payday loan cost comparison

Here is a simple comparison of our current wage advance pricing against the common payday-loan fee structure described by Moneysmart.

The payday-loan figures above describe common fees identified by Moneysmart. They are not a quote from a particular lender, and individual contracts may differ.

A simple $100 wage advance vs payday loan example

To make the difference easier to understand, consider an illustrative $100 amount over 16 days.

We use 16 days because this is the minimum payday-loan term identified by Moneysmart.

Our $100 wage advance

For a $100 advance outstanding for 16 days:

Advance: $100

5% fee: $5

Approximate interest at 24% p.a. for 16 days: $1.05

Approximate total repayment: $106.05

The interest calculation assumes the full $100 remains outstanding throughout the 16 days.

Payday loan using common fees

Using the fee structure Moneysmart says most payday lenders charge, and assuming one monthly fee applies:

Amount borrowed: $100

20% establishment fee: $20

4% monthly fee: $4

Indicative total: $124

Under these assumptions, our wage advance would cost approximately $17.95 less.

This is an illustrative comparison rather than a quote or guarantee of what another lender will charge. Actual payday-loan costs depend on the contract, repayment period and applicable fees.

Why the cheapest fee is not the only consideration

Cost matters, but it should not be the only factor in your decision.

Before using either type of credit, consider what happens when the repayment comes out of your future income.

A borrowing option that looks inexpensive can still place pressure on your budget if the repayment leaves you struggling to cover rent, groceries, utilities, transport or other essential expenses.

Our wage advance product is not designed for people who are experiencing financial hardship or who would be unable to make their repayments without hardship.

How much will come out of your future income?

A wage advance brings part of your available money forward. It does not increase how much you earn.

For example, if you access $200 early, you will later need to repay that $200 plus the applicable fee and interest.

Before proceeding, work out what you will have left after that repayment and whether it will still cover your essential expenses.

Could you become reliant on repeated advances?

A wage advance is intended to address short-term cash-flow needs rather than replace regular income or solve an ongoing budget shortfall.

Repeatedly bringing your income forward can mean starting each future pay cycle with less money available.

Moneysmart also warns consumers to consider the risks of overusing pay advance services, including repeatedly committing future income and having multiple repayments to manage.

If you regularly need to borrow to cover everyday essentials, it may be worth reviewing your budget or speaking with a free financial counsellor before taking on more credit.

What happens if your circumstances change?

Before borrowing, make sure you understand your repayment obligations and what to do if your circumstances change.

If you already have an advance with us and are experiencing difficulty making a scheduled payment, contact our customer support team as early as possible to discuss the options available to you.

Taking out another high-cost loan simply to repay an existing debt can increase financial pressure and is generally worth avoiding.

Are you borrowing more than you actually need?

Consider the specific expense you are trying to cover and whether you need the full amount available to you.

With our wage advance, the 5% fee is calculated using the amount advanced. Borrowing more also means a larger amount must be repaid from your future income.

Only consider the amount you genuinely need and can afford to repay.

When might a wage advance cost less than a payday loan?

Our wage advance may have a lower total cost where:

• You only need a relatively small amount

• You need the money for a short period

• Our total fee and interest are lower than the alternative you are comparing

• You can comfortably make the repayment without financial hardship

• The expense is an occasional shortfall rather than an ongoing gap in your budget

Lower cost does not automatically make borrowing appropriate.

Before proceeding, check the full repayment amount and consider what the repayment will mean for your next pay cycle.

Alternatives to consider before borrowing

Borrowing is not always the only way to deal with an unexpected expense.

Depending on your circumstances, you could consider:

• Using available savings

• Asking the biller or service provider for more time

• Requesting a payment plan

• Checking whether your utility or other provider offers hardship assistance

• Asking whether your employer provides an internal payroll advance

• Delaying a non-essential purchase

• Reviewing your household budget for expenses that can temporarily be reduced

• Exploring a No Interest Loan if you are eligible

• Speaking with a free financial counsellor

Moneysmart says No Interest Loans may be available to eligible Australians for certain essential goods and services without interest, fees or charges. Eligibility criteria and approved uses apply.

Free and confidential financial counselling is also available through the National Debt Helpline.

Is MyPayNow a payday loan?

No. We provide a wage advance service rather than a traditional payday loan.

With us, approved customers can access credit based on up to 25% of their net pay before their regular payday, subject to a maximum advance of $2,000.

We currently charge a fixed fee of 5% of the advance plus interest at 24% per annum on the outstanding balance, with interest capped at 62 days.

Applications are assessed against our eligibility and credit assessment criteria, and approval is not guaranteed.

Frequently asked questions

Is a wage advance always cheaper than a payday loan?

No. The cost depends on the provider, the amount borrowed, how long the balance remains outstanding and the fees or interest that apply.

Our pricing can produce a lower cost than the common payday-loan fee structure described by Moneysmart for some short-term scenarios, but you should always compare the total dollar repayment for your particular circumstances.

How much do we charge for a MyPayNow wage advance?

We currently charge a fixed fee equal to 5% of the amount advanced plus interest of 24% per annum on the outstanding balance.

Interest is capped at 62 days.

For example, our current published pricing shows that a $100 advance outstanding for seven days would involve a $5 fee and $0.48 in interest, giving a total repayment of $105.48.

Always review our current costs and terms before requesting an advance.

Can I access my entire wage early?

No.

If you are approved, your advance limit is based on up to 25% of your net pay and is capped at $2,000.

Your actual approved limit depends on your income and our assessment of your circumstances.

How much can you borrow with a payday loan?

Moneysmart defines a payday or small amount loan as borrowing of up to $2,000, with repayment terms between 16 days and one year.

The exact amount available will depend on the lender's assessment and applicable lending requirements.

Does a wage advance give me extra income?

No.

You are borrowing against your expected income and must repay the advance plus its applicable costs. That means less money will be available from your future income after repayment.

What should I do if I cannot afford the repayment?

If you already have an advance with us and think you may have difficulty making your repayment, contact our customer support team as soon as possible so we can discuss your available options.

You can also contact the National Debt Helpline for free and confidential financial counselling.

Avoid using another high-cost loan simply to make an existing repayment, as doing so can increase financial pressure.

So, which option costs less?

For a relatively small amount borrowed over a short period, our current wage advance pricing can result in a lower total cost than a payday loan charging the common 20% establishment fee and 4% monthly fee described by Moneysmart.

But price is only part of the decision.

Look at the total amount you will repay, how that repayment will affect your future income and whether you can afford it without financial hardship. It is also worth considering lower-cost or no-cost alternatives before borrowing.

If you believe a wage advance may be appropriate for an occasional shortfall and you can comfortably manage the repayment, review our current eligibility requirements, fees, interest and terms before requesting an advance.

The information provided in this blog is for general informational purposes only and does not constitute financial advice. It is not tailored to the specific circumstances of any individual. Before acting on the information, you should consider whether the information is appropriate for you having regard to your objectives, financial situation and needs.