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It’s no secret that payday loans are one of the most unethical financial products on the market today. In fact, most payday lenders set up shop in low-income communities specifically so they can prey on families and individuals who lack basic financial literacy.
On the surface, taking out a loan to get access to your paycheck (or a portion of it) may seem innocent, but the facts and statistics tell a different story:
- According to PEW, 12 million Americans take out payday loans each year, spending $9 billion on fees.
- 80% of payday loans are rolled over into another payday loan within 14 days, starting what can often become a lengthy cycle.
- PEW states that the average payday borrower spends an average of $520 in fees to repeatedly borrow $375. The average fee at a storefront loan business is $55 per two weeks.
Clearly, payday loans can be devastate your monthly budget very quickly. Fortunately, the Earnin app is an alternative to payday loans that, in our editorial opinion, is worth considering when you’re in a pinch.
The Earnin App in a Nutshell: Earnin is a free app that allows you to borrow money against your paycheck. There are eligilibilty requirements and limits for using Earnin, but the app doesn’t directly charge fees. Instead, it asks users to pay it forward and help other Earnin users via optional tips, which can range from $0 to $14.
What is the Earnin App and How Does it Work?
The Earnin app is a free/low-fee alternative to payday loans designed to help people break free from high interest predatory lending and the paycheck-to-paycheck lifestyle. With the app, you can get paid early for hours you’ve already worked before your payday — without spending money on any fees or interest.
Does this sound too good to be true? We thought the same thing when we first saw the initial rollout of TV commericals for Earnin.
But our research confirms it — Earnin is legit, and it’s a great option for some people to use in a pinch when cash is tight.
Here’s how Earnin works:
- Earnin basically allows users to pay themselves as they go using the free app for Android and iOS — up to $100 for most users — depending upon the number of hours you actually worked.
- Earnin makes money when users pay an optional “tip” when they withdraw funds. You can pay anywhere from $0 up to $14 per withdrawal, but the choice is always yours. You could theoretically use Earnin and pay a $0 tip for each withdrawal, but that would obviously put the app and company out of business if nobody chose to “pay it forward,” as Earnin suggests.
- When you need money, Earnin verifies the number of hours you worked both in that day and for your current paycheck. Withdrawal requests are typically processed the next business day if your request is made on a weekday or the second business day if you request it on a weekend.
Who Can Use Earnin?
If there’s a catch to the Earnin app, it’s this: Only salaried, hourly, or on-demand employees are eligible to use Earnin. So if you’re a freelancer or otherwise self-employed, the app won’t work for you.
Additionally, you must receive your paycheck electronically via direct deposit to be eligible to use the Earnin app. If you still get an old-fashioned paper check, you’ll have to switch to direct deposit to use Earnin.
Why such heavy restrictions? Earnin must be able to accurately track your hours and receive proof that you actually worked before they can pay you.
Hourly employees can upload a photo of your daily timesheet as proof, and salaried employees can allow Earnin to track your location via the app to prove that you actually went to work when you said you did.
Again, if you’re an on-demand worker whose hours fluctuate, you can still allow Earnin to connect to your related account to track your hours. For example, Uber can automatically upload your ride receipts to Earnin.
How Much Money Can I Take Out?
While Earnin strives to help people avoid high interest debt and costly fees, there are limits in place to protect the community of users. Currently, most users can access up to $100 in a single day, assuming they have sufficient hours worked to cover this withdrawal.
Weekly withdrawal limits vary from person to person, as they are based on hours worked and additional factors, most notably rate of pay. But for most individual users, weekly withdrawal limits will range somewhere between $100 and $500.
Typically, Earnin rewards responsible withdrawal habits and increases limits over time. In our editorial opinion, this can quickly become a slippery slope, which is why we recommend only using Earnin when it’s absolutely necessary — for example, to avoid high interest credit card debt or cover small emergencies.
What More Can Earnin Do For Me?
Beyond paycheck advances, Earnin has two features that could be very helpful for many users: Balance Shield and the soon-to-be-released Health Aid.
How Does Balance Shield Work?
If you have a hard time tracking your spending and sticking to your monthly budget, Earnin has a feature called Balance Shield which is designed to help you avoid overdrafting your checking account — and racking up massive fees as a result.
By simply linking your checking account to the Earnin app, Balance Shield will automatically transfer a $100 advance to your checking account every time its balance falls below $100. If you don’t have money in an emergency fund or high interest savings account, this feature could be a life-saver for those times when money gets tight and you still have upcoming expenses to pay.
That said, Balance Shield does have limits you should be aware of before you choose to use it. For example, if you’ve already accessed funds recently and reached your period limit, Earnin won’t transfer money into your checking account — even if your balance dips below $100. And if your account is overdrawn in one fell swoop due to a large transaction or check that clears early, you’ll most likely face a stack of fees to pay from your bank.
What is Health Aid?
Coming soon to the Earnin app, Health Aid is a new feature designed to help you negotiate your medical bills or help you find a no-interest payment plan to pay them off.
Here is how Earnin says Health Aid will work when it is rolled out:
Just like Earnin’s paycheck advance loan feature, you only pay what you feel like paying in the form a tip.
Currently, Earnin’s Health Aid feature isn’t ready to rollout, but you can learn more and get on the wait list here.
Is Earnin Safe to Use?
When it comes to borrowing money, it’s perfectly normal to be concerned about safety — especially when you are entering your sensitive banking information into a third-party app.
However, Earnin passed our review of their security features with flying colors. They utilize standard bank-grade encryption technology to ensure the safety and security of your banking credentials.
Of course, no technology is perfect, but if you trust other apps with 256-bit encryption technology, we think you can trust the Earnin app, too.
Pros and Cons of the Earnin App
Like an any app, the Earnin app may better for some users than others. We’ve put together a detailed breakdown the pros and cons of the app to help you decide for yourself.
Wrap-Up and Final Recommendation
The Earnin app is a great option for anyone who needs the occassional light boost in their checking account to get them through the week until payday, but we must be 100% clear: If you’re consistently relying on payday loans, cash advances, credit cards, or even the Earnin app to get by when money is tight, you’re probably ignoring symptoms of a much larger financial problem.
The bottomline is you probably need to make some sacrifices within your monthly budget to build up an emergency fund and stash that money in a high interest savings account where you won’t be tempted to spend it.
On the other hand, if you’ve got a healthy emergency fund and just don’t want to dip into it, using the Earnin app responsibly could be a sensible move.
Here are some resources to get you started: