Finding there’s been a bit too much month at the end of your money recently? You’re not alone. Post-lockdown, more and more of us are soon going to be feeling this way. It stands to reason, then, that if you’re struggling with money at the moment, you might consider a salary advance.
But what does a salary advance mean in real terms? How likely are you to be able to secure one? And what should you be aware of if you are going to try this route?
Let’s look at the practicalities of a salary advance, and suggest some alternatives to consider, too.
A salary advance is an amount of money that your company pays ahead of your official pay day. The advance is just a payment from your regular wage, but early – so it could be useful if you have a one-off payment that you can’t stretch to, for example a rental deposit. If you need a large sum, it could be paid back over a number of months – meaning several months with a reduced wage.3
If you think you would benefit from this, you can ask your payroll or line manager if a salary advance could be considered. Be prepared for them to say no, though. There will often need to be a very clear reason, and you’ll need to be a trusted employee with a good working relationship in order for them to consider it. Salary advances aren’t something that companies will commit to regularly, so the circumstances will often need to be exceptional. Write a letter outlining your situation, and then request a meeting to discuss the details.
Remember that a salary advance is not a loan – you won’t have to pay it back, and you won’t have to pay interest. If these things are suggested, it raises serious red flags about your company!
It’s also important to remember that you’re not going to get a full salary when pay day does come around, if your company has already given you a cash advance. If you are considering asking for one, you need to make sure you’ll be able to tighten the purse strings for the following month as your pay will be reduced.
Remember that a salary advance could easily put you in a debt cycle, where you get less of a salary each month, especially if you’ve taken out an Employer Salary Advance Scheme (ESA) that allows for regular advances. The Financial Conduct Authority (FCA) has raised concerns over ESAs in recent months, flagging that the industry isn’t properly regulated. The FCA has also likened ESAs to payday loans. This should be as good a reason as any to stay away from them.
We’d warn against regular salary advances that are tied schemes such as ESAs. They’re likely to put you on the back foot and see you stuck in a cycle where you have to keep taking out advances, when you run out of money as a result of your reduced salary.
Of course, there are occasions when a salary advance might work for you. If you know that you only have a single payment to cover, and that you will be able to live off the reduced salary for the following month, a salary advance might be a useful tool.
Some of the times when it might be useful in solving a specific problem include:
- When you need to pay for emergency, short term repairs, for example if your car needs work or your boiler has broken down
- If you need to pay a rental deposit whilst you’re waiting for a previous deposit to be repaid
- If you need to pay for emergency dental work
- When other credit lines aren’t available to you. This might be if you have a low credit score and can’t get a credit card, for example
A salary advance is never guaranteed, no matter how well you get on with your boss or how detailed and persuasive your request letter might be. It pays, then, to consider other options if you can.
Before you think about a salary advance, you should consider:
- Credit cards: one-off payments are exactly what credit cards are designed for, so you shouldn’t feel guilty about putting your new boiler or much-needed filling on the plastic, even if you are slightly debt-averse. Remember, repaying credit card debt every month builds your credit score too. There are actual positives to paying for things in that way!
- Extending your overdraft: if you’ve been with your bank a long time and have a regular salary coming in (which we expect you do, if you’re considering a salary advance) you should speak to your bank about extending your overdraft. Chances are, they’ll agree to it immediately and you’ll be set up in minutes.
- Make sure you’re getting all the benefits that you’re entitled to: yes, it might seem obvious – but there could easily be something that you’re missing that could see your money stretch a little bit further. With a bit of extra help, you might suddenly be able to absorb your unexpected cost. You can check what benefits you should be getting via Gov.uk.
It goes without saying that an option that you should never, ever consider is a payday loan. Don’t even get tempted, unless you want to end up in a serious debt spiral with exorbitant interest repayments.
Do you have experience taking out a cash advance? We’d love to hear about it if so – let us know over on the forums.
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