Do Gig-Economy Workers Use Payday Loans?

Inside Subprime: Feb 11, 2019

By Grace Austin

Gig economy workers, such as ride share drivers, dog walkers and Airbnb hosts, are dependent upon a volatile industry for income, leaving them susceptible to payday loans and similar style apps.

The digitally driven gig economy has grown explosively since its arrival within the last 10 years. A gig economy worker is someone who takes on a temporary and short-term contractor job. And now, about 35 percent of the U.S. labor force is now involved in the gig economy. That’s 55 million people driving, dog walking, freelancing, babysitting, and delivering any and everything imaginable.

For some, it can be a side job to earn extra income, while for others it’s an easy way to set your own work schedule.

But being a gig economy worker has its downsides. Since not every worker is paid daily, gig economy workers must often wait weeks to be paid. And those relying solely on their gig economy job must face the reality of paying for their health insurance and medical expenses out of pocket, as one Forbes article recently stated.

In addition, studies have shown that gig workers are often “reluctant” or “financially strapped” individuals, as a McKinsey study showed.

Incomes also vary greatly with gig economy jobs; Uber and Lyft drivers could have a slow day, or delivery workers that rely on tips could be shorted. A reliance on tips and demand means income can come up short even as bills stay the same.

Not all gig economy workers, especially the ones who rely on it as a sole income, also have access to traditional financial institutions like banks.

When these factors combine together, that’s where payday loans and other alternative financial options like payday loan-style apps may seem like a good idea to those working in the gig economy.

Payday loans are typically short-term, high-interest loans that cater to those with bad credit or few financial options since it doesn’t require an extensive background check or sometimes checking accounts. For payday loan borrowers, they often pay more in fees than they do in credit, making it a poor option for those in need. Adding to that, as a Pew Trust report explained, “average payday loan borrowers earn about $30,000 per year, and 58 percent have trouble meeting their monthly expenses.”

And similar payday loan style apps could be just as harmful. Medium recently published a series of articles on an app marketing itself as a way to get paid quickly without turning to a payday loan. For one things, it offers a “tipping” model that experts warn can turn into a high-interest loan. And a common problem with payday loans is still present with the payday loan-style apps, since after you’re paid “you could end up with an overdraft charge if there’s a gap between when you’re supposed to get your money” when your account is debited.

But experts, as reported in the New York Times and MarketWatch, hope that the demand for instant pay from digital platform companies could be beneficial for gig economy workers, leading to less of a reliance on payday loans and similar products.

For more information on payday loans, scams, and cash advances and check out our city and state financial guides including FloridaIndiana, Illinois, KansasKentucky, MissouriOhio, Texas and more.