Have you ever found yourself a little short a few days before payday? It can happen to the best of us. In the past, your choices for getting money fast all made a bad situation even worse. But now there is a better choice. Let us introduce you to Earnin.
The Bad Old Days
Because so many Americans are now part of the gig economy or subject to hourly paid jobs with schedules and hours that fluctuate from week to week, it can be hard to budget your money.
How can you make a budget if you’re not sure how much money is coming in next month? Due to this kind of uncertainty, more and more of us are facing situations where we fall short before our next paycheck arrives.
Unless you work in an industry like serving or bartending where you get cash tips, it can be tough to make it to that next payday. But why should it be? You’ve already earned the money!
If you don’t have an emergency fund and you run out of money before your next paycheck, what are your choices? In the past, they were all bad. You could take out a cash advance on your credit card. But a cash advance is different from charging a purchase to the card.
Credit card cash advances often have a different and higher rate of interest. When you make a purchase on a credit card, the interest doesn’t start accruing until the 30 day grace period ends. Not so of cash advances. The interest starts accruing as soon as you take out the cash.
Another option was to get a payday loan. The typical two-week payday loan has an interest rate of 391-521%! That stinks, but if it’s truly a one-time thing, it’s not the end of the world. The problem is, payday loans are not typically a one-time thing.
The average borrower borrows $375 eight times a year and pays $520 in interest. This happens because the loans turn into a never-ending cycle. You borrow to hold you over until you get your next paycheck but when you do, you can’t pay the loan back. So you borrow again. And again. And again.
If you take out a cash advance or a payday loan, you’re already in a bad situation, and both these options make things even worse. So how can you get the cash to bridge the gap until your next paycheck without digging yourself into an even deeper hole? Meet Earnin.
What is Earnin?
Earnin used to be known as Activehours. The company provides the same service; they merely changed their name. Earnin allows people to borrow money against their paycheck before payday.
Earnin lets you access the money you’ve already worked for when you need it instead of according to your pay schedule.
Earnin, Activehours initially, was founded in 2012 by Ram Palaniappan. He decided to start his own company after seeing a problem that needed to be solved. At his previous job, several of his employees ran short of cash between paychecks.
To cover the gap, they were taking out high-interest payday loans or racking up overdraft fees against their bank accounts. He began writing checks from his own account to help his employees, and they would pay him back once they received their bi-weekly paychecks.
Even after leaving that job, Ram continued to loan his former employees money in this way. Word got around, and strangers even began coming to him for short-term loans. He saw an opportunity to fill a gap and founded Earnin.
Setting Up Your Account
To use Earnin, you must receive your paycheck via direct deposit into your checking account. You must also have a regular pay schedule (you’re paid weekly, biweekly, semi-weekly or monthly), a fixed work location or an online time card system if you work remotely.
To set up an account, you will need to provide your email address and create a password. Next, add your paycheck information and whether you are an hourly or salaried employee. If you’re hourly, you’ll enter how your hours are tracked.
If you’re salaried, you’ll enter the location of your job. Connect to your bank and enter the username and password for your account. If you don’t see your bank, it’s not supported by Earnin, and you’ll need to set up a new account with a supported bank to use the service.
Next, you’ll include your employer information. There is a list of employers already in the system. If you don’t see yours, you can add them. Some of the companies already working with Earnin include Apple, Bank of American, Whole Foods, Walgreens, and Starbucks.
Enter the routing and account number for the bank account where your paycheck is direct deposited. Your account is now set up. In a few days, Earnin will verify your bank account information by sending two small test deposits.
How Earnin Works
When you make a request, Earnin will verify your work hours for the week. If you’re hourly, you’ll upload a photo of your timesheet taken from a computer or time card clock.
If you use one of Earnin’s timesheet partners, you can just connect to it in the app and the hours will be added automatically. The partners include Uber Drivers, Brink, Tsheets, Nimble Schedule, uAttend, When I Work, Deputy, and WebPunchClock.
Earnin doesn’t accept paper, PDF, or Excel time sheets but can rack the time you worked by using your work location. To do this, you need to enable permission on the Earnin app to confirm your commutes. Salaried worker’s work hours are tracked the same way.
Earnin calculates your salary information by looking at your paycheck deposit history and work schedule. There is a limit of how much you can borrow.
All users can borrow at least $100 per pay period, and that amount can increase up to $500 per pay period if your account is in good standing.
If you make your request on a weekday, the money will arrive in your account the following business day. If it’s a weekend, it takes two business days. If your bank is eligible for Eanin’s Lightning Speed, the money will be deposited into your account in just a few minutes.
You will pay back the amount you borrowed with your next paycheck. Earnin automatically deducts the money from your linked checking account.
Because Earnin tracks how much and how often you’re paid, it won’t allow a withdraw that would be more than you could pay back from your next paycheck.
If Earnin tries to withdraw the amount you’ve borrowed and there are insufficient funds, you’ll be blocked from taking another loan until you’ve paid back the full amount you owe.
Gig Economy Workers
Earnin doesn’t leave out those who earn a living in the gig economy. If you work for Uber, GrubHub, DoorDash, Instacart, Shyp, Handy, Doorman, or Wag you just have to upload a photo of your trips summary or earnings page using the Add Timesheet” button in the app.
Earnin is free to use. Users can opt to “tip” for using the service, up to $14 per loan but it’s not required to use the service. Users pay what they think is fair. I know you’re waiting for me to write more, a “but” or an “unless.” Nope. That’s it. Earnin is free.
How can the company expect to make money by simply relying on tips? Loyalty. Earnin customers are grateful for a service that can help in an emergency, and that doesn’t charge predatory rates for doing so.
It’s the same concept at companies that give their employees unlimited vacation time. Those employees don’t take advantage of the policy because they feel loyal to a company that treats them well.
Banks in the US collected $33.3 billion in overdraft fees in 2016. Earnin can help protect you from those fees. Balance Shield is a voluntary option within Earnin. If you opt-in, Earnin will automatically send up to $100 to your account any time your balance falls under $100.
This prevents your bank charging you overdraft fees for small purchases you didn’t have the money to cover.
The amount Earnin will cover depends on your past timesheets or app tracking so be sure to continue to upload timesheets and allow the app to track your commute even if you aren’t regularly borrowing money.
You’re giving a lot of personal data to Earnin, your income, your bank balance, and your daily coming and goings. It’s understandable to be a little wary. But Earnin uses bank-level security including 256-bit encryption to get your personal information private and protected.
You Still Need a Budget
Earnin is a great service. It helps people in a bad situation without making things worse the way predatory payday lenders do. But you shouldn’t become dependent on a service like Earnin. It should just be a good safety net for the unexpected.
The expected are your regular bills and expenses and you are prepared for those by making and sticking to a budget. You shouldn’t be relying on Earnin to pay your light bill or to buy groceries.
If you are struggling, we have tons of frugal tips that will help you end the cycle of living paycheck to paycheck.
And an Emergency Fund
If a budget is the most important aspect of personal finance, an emergency fund is just below it. An emergency fund is money set aside for, well, an emergency. Something like a car repair or medical expense.
For many hourly workers who make up a large chunk of Earnin’s users, time off from work whether it’s for an illness, a medical appointment, or a vacation is unpaid. If that’s your situation, an emergency fund is even more important. Those aren’t even emergencies, just regular life events.
The ideal emergency fund contains enough money to cover three to six month’s worth of bare bones expenses, things like housing, utilities, and food.
You don’t have to include things like clothing and entertainment expenses. In the event of an emergency expense, you could cut those things out.
Saving three to six month months of expenses can sound impossible but saving $1,000 is a great start. Once you see that you can save that much, you’ll be motivated to save more until you do have that three to six months saved.
Having an emergency fund gives you some breathing room and can mean the difference between a small hiccup in your finances and a huge setback.
The Final Verdict
We think Earnin is a great product. It fills a gap for people without taking advantage of their situation. We recommend Earnin for those times that you need some quick cash. Just don’t become reliant on it. Set up a budget that works and start building your emergency fund.