Salary Advance Schemes
The financial impact of lockdown has been hard on millions of us, and this has given rise to something known as Employer Salary Advance Schemes (ESAS). Through these schemes, cash-strapped workers can access up to 50% of their wages before their usual payday. However, as we know from payday loans, this can push their users into an ever-tightening spiral of debt and worry.
How Do ESAS Work?
Working alongside your payroll company or employers, ESAS only allow you take money that you have accrued up until that point (keeping your company safe). They then retake their money and charges from you on payday. All good so far.
Often called “wellness packages”, or something similar, ESAS were created to offer a ‘safer alternative to payday loans’. If used correctly, ESAS look gerat. Unlike payday loans, which can still APRs of upto 1,400%, ESAS charge a flat fee, or percentage, per withdrawal – with some offering your first withdrawal for free.
Whilst this seems all well and good, here at Debt Assist, we know that this can be the first step into larger debts. Taking out money mid-month often leads to shortfalls in the next month, needing you to take out another loan, and another, and another… Each with their own fees to be repaid, giving you less money each month. Enter the spiral of debt!
The Danger of ESAS
The danger of ESAS is that they are (currently) unregulated by the Financial Conduct Authority (FCA), which means that their fees can actually be higher than the price cap on payday loans!
ESAS are used by some large companies as part of their employee packages and they are definitely being used. Latest reports show that on average people are taking out loans three times per month! And whilst most of these will have simply been used to smooth cash flow throughout the month, Debt Assist worries about those slowly trapping themselves into the debt spiral, with their final monthly salary reducing each month as they pay off previous loans.
Are You In The Spiral of Debt?
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