Access to credit: How the Income Advance Program stacks up

In today’s economy, financial stability can feel like a distant goal for many, especially those facing unexpected expenses or income disruptions. Understanding the relationship between  financial stress, employee engagement, and their bottom line  has employers wondering about solutions , but if you haven’t experienced barriers to financial stability yourself, it can be hard to understand the available solutions. When we are describing the Income Advance program to employers, we often find it valuable to provide this additional context.  

In this blog, we will take a deeper dive into comparing Income Advance to other avenues for accessing cash to address an immediate expense. Our goal here is  to show how Income Advance is a non predatory, safe, and accessible solution for employees experiencing financial stress, to ultimately turn into financial empowerment for employees. 

Below we have broken out products available to borrowers that might be interested in Income Advance. 

Personal Loans

Personal loans are powerful tools for making large purchases without cash on hand and building credit, but they typically have strict creditworthiness requirements. Eligibility and APR are determined based off of a credit check and vary based off of creditworthiness. Individuals with higher credit scores face fewer barriers and enjoy lower interest rates compared to those with lower scores. According to Bankrate, the average interest rate on personal loans is 12.36%. However, this average is skewed by the higher number of borrowers with strong credit. Those with credit scores between 720 and 850 receive average rates of 10.73% to 12.50%, while those with scores between 300 and 629 face much higher rates, ranging from 28.5% to 32%. As you can see, individuals with low credit often struggle to qualify for loans, and when they do, the costs are significantly higher.

Credit Cards

Credit cards provide access to making purchases and building a strong credit history, but they also carry risks. While credit card balances accrue interest, this interest is only charged if the balance is not paid in full by the due date. The motivation to pay in full is strong, given that the average credit card interest rate is 27.62%. However, the APR for credit cards, similar to loans, varies based on creditworthiness, which is determined by the applicant's credit score. Higher credit scores can qualify you for lower interest rates—typically around 16% to 18%—while lower scores can result in higher APRs, often between 25% and 30%. According to Bankrate, about 50% of Americans carry credit card debt across all income levels. The group most affected by credit card debt is those earning less than $50,000 per year, with 58% carrying balances, compared to 43% of those earning over $100,000 annually.  

Earned Wage Access and Direct to Consumer Advance

Earned Wage Access (EWA) products allow employees early access to their wages, helping them address unexpected expenses and avoid payday loans or overdraft fees. EWA providers partner with employers or payroll processors, integrating with their systems to facilitate early wage access. When an employee requests an advance, the funds are transferred to them and then deducted from their next paycheck. Costs for this service may include monthly subscription fees and per-transaction charges, typically ranging from $5 to $10 per month and $1 to $5 per transaction. 

Direct-to-Consumer (D2C) Advances offer similar wage access without involving employers. These providers link directly to consumers' bank accounts, monitoring paydays and cash flow. Consumers can request an advance, and if approved, the funds are deposited into their account, with repayment via electronic debit from their next paycheck.

While EWA and D2C Advance products provide financial flexibility, they can also lead to dependency and higher costs. The Financial Health Network found that over 70% of consumers took two or more advances in consecutive semi-monthly periods. Though individual fees may seem small, the average per-transaction fee is $4.07, which can add up with frequent use. A study by Harvard Kennedy School’s Mossavar-Rahmani Center found that EWA and D2C Advance products can carry an APR ranging from 91% to 578%, depending on fees and subscriptions. Click here to learn more about Earned Wage Access and Direct to Consumer Advance products in relation to Income Advance. 

Payday Loans

Payday Loans are short-term, high-cost loans, generally for $500 or less, typically due on your next payday. Depending on state laws, payday loans may be available through storefront lenders or online. To repay the loan, you usually write a post-dated check for the full balance, including fees, or you provide the lender with authorization to electronically debit the funds from your bank, credit union, or prepaid card account. If you don’t repay the loan by the due date, the lender can cash the check or electronically withdraw the funds. Payday loans are often structured to be paid off in a single lump-sum payment. Many state laws set a maximum amount for payday loan fees, typically ranging from $10 to $30 for every $100 borrowed. A typical two-week payday loan with a $15 per $100 fee equates to an annual percentage rate (APR) of nearly 400%. 

While each of these products provide a solution, we advocate that Income Advance is the only program that is accessible, non-predatory, and safe for individuals facing financial difficulties. The chart below will compare income advance with each of the above products in the market. 

Quick reminder: Income Advance is an employer-sponsored small dollar loan program offering employees quick access to emergency funds without a credit check. Loans are available within 24 hours, repaid through payroll deductions, and feature an APR of 20% or less, a maximum amount of $2,000, and a repayment period of at least six months. The program also encourages long-term savings by continuing payroll deductions into a savings account after the loan is repaid unless the borrower opts out, helping employees build credit and save money.