Move over payday loans, a new app is giving borrowers a far more affordable option. While the Earnin app limits borrowing to small amounts, this is a good move to keep your debt from getting out of control.
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I live in a fairly low-income urban neighborhood, and payday loan places abound. They’re everywhere because these types of loans target themselves toward the millions of Americans who live paycheck to paycheck. They’re just getting by, and a single disaster can make it impossible to pay that month’s rent.
Payday loans are a problem for many reasons. For instance, a study by the Consumer Financial Protection Bureau showed that most payday loan borrowers end up paying more in fees than they originally borrowed. You might borrow $375 to get your car fixed so you can get to work. But you could wind up paying more than double that by the time you get the loan paid back.
And, of course, these loans create a dangerous cycle of borrowing to get out of trouble. But then you have to pay them back quickly, making your next payday even tighter. So they keep squeezing your paychecks until you can’t pay your bills and your payday loans.
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Of course, the long-term solution here is to get out of the paycheck-to-paycheck cycle. And believe me, I know that’s harder than it sounds. And while you work towards the goal of building an emergency fund, emergencies can still happen. And they can leave you in immediate need of cash.
What is Earnin?
That’s why companies like Earnin (formerly called Activehours) are coming up with creative alternatives to the payday loan. With this app, you can cash in on your hours worked before payday. But unlike a payday loan, which charges exorbitant fees every time you use one, Earnin doesn’t charge any fees.
Sound crazy? It kind of is. But it seems to be working for some people. Here’s how it works, the caveats you should know about, and whether or not it’s right for you.
How Does Earnin Work?
Basically, Earnin works on a pay-as-you-can model and is available for Android and iOS devices. You make a withdrawal of up to $100 per day based on the hours you actually worked. Then you pay a tip on top of the withdrawal--usually just a few bucks or up to about $15. That’s a steal compared to the fees and interest you’ll be charged on a traditional payday loan.
The catch is that you can only use Earnin if you’re a salaried, hourly, or on-demand employee. Freelancers, remote workers, and those with several jobs won’t find what they need here. You also have to receive your paycheck via direct deposit to use Earnin.
Earnin has to be able to track the hours you work. For hourly workers, you can upload a photo of your daily timesheet or connect the app to your company’s online timesheet system. If you’re salaried, you can turn on location tracking so that Earnin can verify you went to work that day. If you’re an on-demand worker, you can upload photos of your task receipts, or the app automatically uploads Uber ride receipts if you’re a driver.
When you need money, Earnin verifies the number of hours you’ve worked for that paycheck. You’ll get the money the next day if you request on a weekday or the second business day if you request on a weekend. A few banks even support immediate fulfillment from Earnin deposits.
On payday, Earnin deducts the amount from your paycheck. You can also add a tip, typically between $0 and $14, to that withdrawal.
What Are the Limits?
Of course, no one is going to let you borrow a whole paycheck’s worth of money before payday. And Earnin has its limits. All users can withdraw up to $100 in a single day. But individual users will have varying per-pay-period limits--between $100 and $500.
Your pay period withdrawal limit depends on your financial behavior, earnings, and other factors. If you use the app well and earn good money, you can borrow more over time.
If you struggle with keeping track of your bank accounts, you might accidentally overdraw them. This can lead to hefty fees. Earnin offers a Balance Shield feature meant to protect you from this. It can link up to your checking account. When the balance dips below $100, it will automatically send you a $100 Earnin loan.
The Balance Shield does operate based on your daily and pay period maximum borrowing levels and the available earnings you’ve added by tracking your hours. So if your pay period limit is $100 and you’ve already taken it, you might be out of luck. But this could be a useful feature if you don’t have money in savings or your bank doesn’t offer a similar feature.
Things You Should Know About Earnin
As with any financial product, Earnin does have it drawbacks. Here are some things to consider before you sign up for the app:
Borrowing Limits: The borrowing limits for Earnin are lower than with payday apps and some other fast borrowing options. This can be a problem if you’re in a pinch and need more than a couple of hundred bucks to float you until payday.
Not Everyone Can Use It: Depending on the type of work you do and the way you get paid, you may not be able to use Earnin at all. That’s definitely something to consider before you sign up.
It Links to Your Account: Although Earnin uses hefty encryption to keep user data safe, it does store a lot of your data and connects to your bank account. That can be a little scary for some users, so be sure you understand what data they’re collecting and how they store it before you sign up.
Could Still Get Expensive: Even if you don’t tip every time you use Earnin, you’re still paying for access to your money when you do tip. And those dollars can add up more quickly than you’d think.
Pros and Cons of Earnin
No ongoing interest and fees
Pay what you think is fair with the tip feature
The borrowing limits for Earnin are lower than with payday apps
Not available for freelancers, remote workers
"Tips" could add up to a big expense
Still Better Than a Payday Loan
Even with these caveats, if you can use Earnin, it’s probably going to work out better than a payday loan. That’s because there are no ongoing interest and fees, and you can pay what you deem reasonable when you take a withdrawal.
The only situation where this may not be true is if you need more than your maximum borrowing limits. In this case, you may need to look into a payday loan or another form of personal loan.
Need More Cash?
Do yourself a favor: Do your best to avoid having to rely on a service like this. They're really a last resort. We want you to get into the habit of only spending what you can afford. Using a service like this is essentially borrowing against your next paycheck. It's even worse than living paycheck to paycheck. Become financially healthy and break this cycle.
If you’re really in a pinch and you need even more than Earnin can provide, consider a personal loan. One of our favorite partners is Fiona, which aggregates all the available loans that meet your financial requirements and gives you the best offers available.
Empower Cash Advance can be a good substitute for a payday loan. You can get a Cash Advance of up to $250.^ Empower delivers the funds directly to your account and you can use the money to cover unexpected expenses.
When you get your next paycheck, Empower automatically settles up by deducting the amount of the advance you received. There are no interest payments or late fees to worry about.
If you sign up for an Empower Card, you will also get other perks, like the ability to earn interest and up to 10% cashback* at select retailers. Plus, get your paycheck up to two days faster.*
Empower is a financial technology company, not a bank. Banking services provided by nbkc bank, Member FDIC.
For more information, read our full Empower review.
^ Eligibility requirements apply.
* Early access to paycheck deposit funds depends on the timing of the employer’s submission of deposits. We generally post such deposits on the day they are received which may be up to 2 days earlier than the employer’s scheduled payment date. Cashback deals on Empower Card purchases, including categories, merchants, and percentages, will vary and must be selected in the app. Cashback will be applied automatically when the final transaction posts, which may be up to a week after the qualifying purchase.
As a robo advisor, Wealthfront helps you get control of your finances with automated investment services, a high-yield savings account, and free financial planning — they want you to get out of a paycheck-to-paycheck cycle. Still, if you need help, the Wealthfront Cash Account (Wealthfront Brokerage) lets you save your money for emergencies and bigger investments like the down payment for a home. This account isn’t just a savings account, it can do everything a checking account can, including getting paid up to 2 days early.
Making waves in the fintech industry, Chime is an online financial app with high-yield savings. Not only can you earn interest on your savings deposits but receive your paycheck up to 2 days early. If you are in a pinch you can take advantage of the SpotMe® feature that provides fee-free overdraft. Eligible customers may overdraft between $20 and $200, or maybe even more, depending on how much money is regularly direct deposited into your account each month and your account history. You can check your Chime mobile app to find out what your limit is for the SpotMe® feature.
Chime Disclosure - Chime is a financial technology company, not a bank. Banking services and debit card provided by The Bancorp Bank or Stride Bank, N.A.; Members FDIC.
1Chime cannot guarantee when files are sent by the IRS and funds can be made available.
^Early access to direct deposit funds depends on the timing of the submission of the payment file from the payer. We generally make these funds available on the day the payment file is received, which may be up to 2 days earlier than the scheduled payment date.
Related: Dave vs Earnin vs Moneylion
When To Use Earnin
So when should you consider using Earnin? If you’re just starting to work towards a goal of building up an emergency fund, Earnin can help you get there without decimating your fund when a minor emergency arises. It can help you if you forgot a bill that’s about to go past due--causing you fees and a ding on your credit score. Or if you’re close to overdrafting your checking account and have an automatic payment coming out, paying a $10 tip to Earnin looks a lot better than a $34 overdraft fee.
However, if you find yourself getting into the habit of using Earnin most pay periods, it’s time to reconsider your finances. You might want to look into where to get a side gig so you can earn more money. Or maybe look at our articles on paying down debt so you aren’t drowning in minimum payments. Or your situation might be simple enough to be solved by budgeting your money better.
Whatever steps you need to take, though, take them before you start using Earnin or any payday lending type solution on the regular.