Interest-Free Payday Loan Innovation Launches

Workers finding themselves cash strapped in the few days before a paycheck have up until now found themselves facing two unappealing alternatives.  The lesser of the two evils entails borrowing money from family or friends, and facing the shame that accompanies such requests.  Alternately there are payday loans—which in the best case involve extremely high interest and in the worst cases also come with harassment from predatory lenders.

Activehours wants to change that by allowing workers to borrow as much as $100 per day against what they have already worked during a pay cycle, without paying interest or fees. Those in need of loans don’t pay anything at all—unless they feel like it.

“You decide what you want to pay, what you think is fair, and you could decide you don’t want to pay anything,” Activehours founder Ram Palaniappan told the NBC Nightly News. “We have some people who tip consistently and we have some people who tip us every third, fourth or fifth transaction. So we’re seeing some very interesting tipping patterns.”

To sign-up, users provide Activehours with their bank account numbers. To request funds, a screenshot of a timesheet is sent to Activehours, with a request for funds and a stipulation on how much (if anything) the user wants to tip.  The app (which is available for Android or iOS) suggests five possible tips, the first of which is always zero.

When you need money, you forward a screenshot of your timesheet to Activehours, decide how much you want deposited into your bank account and what, if any, tip to authorize. The app provides five suggested tips for every transaction. Zero is always the first option.

If funds are requested by 3 p.m. PT, then users can expect to see them deposited the next business day.

Although the service does seem to be vastly superior to expensive short term borrowing options, some professionals worry that this could become an easy gateway to financial irresponsibility for some high-risk users.

“Ten bucks feels cheap, and the person is so relieved to have the money that they are happy to be a big tipper,” said the National Foundation for Credit Counseling’s Gail Cunningham, reports NBC. “It all sounds great — no fees, no interest charged, no mandatory payment on top of what’s borrowed — but this could snowball downhill quickly if the well-intended person, the one who thinks they’ll utilize it ‘just this once,’ continues to rely on this pay advance instead of probing to see what the real problem is and resolving it.”