How Wage Advances Can Affect Your Loan Application

In this article, we’ll detail what wage advances are, how they work and how they can affect your chances of approval for a loan.
William Jolly  |  

With the cost of living seemingly higher than ever, that fortnightly paycheck might not last as long as it previously did. When money gets tight, it can be tempting to turn to wage advance services.

While accessing some of your income ahead of time might sound like a no-brainer at first, there’s more to these services than meets the eye. In fact, using wage advances too often can have some very negative consequences.

In this article, we’ll detail how wage advances work and how they can affect your chances of approval for a personal loan and other credit products.

This article was originally published in September 2022.

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What is a wage advance?

Wage advances, also known as pay advances or ‘pay on demand’ services, are a line of credit that allows someone to access a portion of their pay early.

The customer will receive some of their pay before their scheduled payday, and the amount they requested, plus a fee from the wage advance service, is deducted from the regular pay cycle when it hits the user’s bank account.

Though the money borrowed usually incurs no interest, wage advances generally charge a 5% fee on the principal amount every time someone uses the service. This means that for every $100 borrowed, a $5 fee will be charged.

Wage advance services in Australia

Wage advances can come in two forms: a third-party service or an internal employment agreement. While the former does not need to notify the employer of the use, third-party wage advance services can be run through banks or via individual apps and platforms.

The major wage advance services in Australia include the following:

  • MyPayNow
  • BeforePay 
  • Commbank AdvancePay
  • WagePay

Although these are all pretty similar services, they do differ slightly:

CompanyProduct offeringFees
MyPayNowAdvance up to 25% of upcoming wage, or $2,0005% of principal
BeforePayAdvance up to $2,000 (new customers up to $1,000)5% of principal
Commbank AdvancePayAdvance any amount between $300 - $5,000There is a single upfront fee of $5 for every $500, up to a maximum of $50.

An interest rate of 14.90% will apply to overdrawn amounts.
WagePayAdvance up to 25% of upcoming wage (new customers) or $2,500 (return customers)A maximum 5% flat fee and 24% interest per annum
Accurate as at April 2024.

These fees might not seem like much, but when you consider how much you’re borrowing, they’re actually very high. As a financial counsellor at the National Debt Helpline told comparison site Canstar:

“For products with a 5% fee used weekly, that’s theoretically a 260% fee per annum. If you use it fortnightly, it’s 130% per annum, and it’s still much more expensive than other alternatives.”

How wage advances can affect your credit

Wage advances are attractive to people not only because they are short-term, small, and generally incur no interest. Some people find them appealing because the lender is not required to perform a credit check, and they often don’t report their usage to credit bureaus (although some do). 

Instead, they usually have simple requirements, such as being steadily employed and meeting a minimum income threshold. According to their websites:

“There are no credit checks conducted against your credit file. Therefore, your future credit applications will not be hindered in any way by your MyPayNow use.” - MyPayNow

“As part of our screening and verification process, we have our own assessment criteria we use that is based on historic spending behaviour. This includes details like your income and expenses to determine your eligibility.” - BeforePay

While applying for a wage advance may not directly hurt your credit score, it could still impact your credit file and affect your ability to access other loan products with other lenders. Missing repayments and other negative credit behaviours through wage advances can also harm your credit score.

As a responsible lender, Jacaranda Finance performs credit checks on eligible applicants. However, credit checks play a small role in our decision-making. 

You can also check if you qualify without impacting your credit score with Jacaranda.

How wage advances can affect your loan application

Although a wage advance seems like a small, attractive, once-off decision, it could be too good to be true. As a general rule, the more times you take out a wage advance, the lower your chances are for loan approval.

This is because of several factors. One is your debt-to-income ratio (DTI), something lenders consider when assessing creditworthiness. The more times someone takes out a loan to advance their pay, the riskier they might seem as a borrower, as they’re borrowing more compared to their income.

Responsible lenders will also conduct an income vs expenses check, reviewing your bank statements to look into all your expenses when determining your capacity to afford the loan. As a financial commitment, wage advances could account for a large portion of your budget and make it very hard - if not impossible - for you to afford extra loan repayments.

Even if you currently have a good credit score, your application could be hindered by the use of wage advances if you make too many within a certain timeframe.

Tips to get your loan application approved

Generally speaking, you can improve your chances of getting approved for a loan by doing the following:

  • Budget: Whether it means sitting down with a spreadsheet, downloading a budgeting app, or simply talking to someone about your finances, budgeting could put you in a better place than taking out your pay earlier.
  • Avoid using WA to pay off debt: If you are using a wage advance to pay off another loan, consider other options, such as a debt consolidation loan or balance transfer. 
  • Don’t use more than one wage advance service: If you do need to advance your wage, try to limit it to only one provider. You may have a smaller chance of approval with two or more wage advances. 
  • Speak to your employer: If you find yourself accessing your pay earlier too often, try raising this with your employer. They might have their own internal wage advance protocols that don’t involve paying any fees; they might offer you extra shifts or internal counselling, or they could even discuss a pay rise with you.

Ultimately, a wage advance is a short-term solution. Using one of these services now and then is ok; just know that it could be viewed negatively if you ever decide to apply for a loan. Each lender will have its own internal guidelines on wage advances, so check their eligibility criteria before you apply.

If you can reduce your wage advances, payday loans, buy now, pay later (BNPL) and other risky spending behaviours, you could find yourself in a much better financial situation.


Resources for debt & financial assistance

If you’re struggling with money or debts, you can call the free National Debt Helpline at 1800 007 007 (Monday – Friday). Aboriginal and Torres Strait Islander peoples can also contact the free Mob Strong Debt Helpline at 1800 808 488.

ASIC MoneySmart also recommends doing the following:


Wage advances vs personal loans: which is better?

As with all forms of personal borrowing, the right option for you entirely depends on your needs and current situation. 

Overall, while wage advances provide a quick fix for immediate cash needs, their frequent use can lead to financial strain and may impact your ability to secure credit, such as home loans, in the future. 

Personal loans, although potentially more rigid in application and slower in funding, can offer a safer long-term borrowing strategy due to more consumer protections and typically lower costs. It's generally advisable to consider personal loans for more extensive or longer-term financial needs and to use wage advances cautiously and sparingly.

See also:

Pros and cons: personal loans and wage advances

Need help deciding between the two? We’ve summarised the pros and cons of both personal loans and wage advances below.

Pros

Cons

Wage Advances

  • Much faster access to funds
  • Credit checks are typically not required
  • Simple fee structure
  • High fees if used frequently 
  • You're borrowing from your own paycheck
  • Can suggest financial risk to lenders
  • It can still impact your credit score if you miss repayments

Personal Loans

  • Larger loan amounts and longer loan terms are available
  • Structured repayment terms
  • More regulation and consumer protections
  • Greater choice in the market
  • Can help improve your credit score
  • Borrowing from a lender, not your own pay
  • Requires credit checks, which can lead to a longer application process
  • Missed repayments can also impact your credit score
  • Interest costs can still be high depending on the loan

Jacaranda Finance Personal Loans

At Jacaranda Finance, we offer loans from $3,000 - $25,000, with loan outcomes delivered on the same day2.

You can check if you qualify for a personal loan without affecting your credit score. If we reject your application, we won’t make a hard enquiry on your credit report, so your score will remain unchanged - no harm done!

Ready to apply?

To get started, simply submit an application through our 100% online application process in as little as 5-12 minutes1

Written by - William Jolly

Content Manager
William is the Content Manager at Jacaranda Finance. He has worked as both a journalist and a media advisor at some of Australia's biggest financial comparison sites such as Canstar, Compare the Market and Savings.com.au, and is passionate about helping Australians find the right money solution for them.

You can get in touch with William via williamj@jacarandafinance.com.au.
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