What to Know About Getting an Employee Loan Through Work
Employers can offer loans to their employees in a few different ways. Employee loans can come directly from your place of work or a third party.
If you need to borrow some money, then there are plenty of options open to you. While a high street bank or building society might be the first place you think of, there are other alternatives.
These can even include your employer.
Types of loans an employer can provide to an employee, and how they work
Loans from your employer can take a few different forms.
One of the most common is a season train ticket loan. As the name suggests, this is a way for your employer to help you pay for your train ticket for work for a year in one go. Generally, you pay for the ticket then take in a receipt for the payment to your employer, who will reimburse you. They will then deduct payments for the loan from your salary each month. These loans are usually interest-free, so spreading the cost in this way doesn’t cost you anything.
However, train tickets are certainly not the only reason you might be able to get a loan from your boss. In fact, you may be able to borrow money from your employer, for virtually any reason.
Again, these loans are typically repaid in chunks from your monthly salary until they are cleared. Employers can charge interest on these loans too, though the interest tends to be on the low side.
Employee loans from third parties
Recent years have seen a host of employees partner with lenders in order to offer loan services to their staff.
The employer flags up the potential to take out these loans to employees, though the loans themselves are financed by the other business. The loan is then repaid through salary deductions.
Alongside loans, these third party firms often provide a host of other services, such as savings and investments as well as financial education.
Pros and cons of getting an employee loan
There are some obvious benefits to borrowing from your employer.
For example, you can borrow relatively small amounts ‒ perhaps just a couple of hundred pounds if you get an unexpected bill ‒ which you may not be able to get from a bank or building society. Borrowing these smaller amounts may usually mean you have to turn to a payday lender or an overdraft, which can be extremely expensive ways to borrow, compared to an employee loan.
The low interest rates are another perk to taking out a loan from your employer, as the actual cost of borrowing can be pretty small. And with interest-free loans for things like train season tickets, some employer loans won’t actually cost you anything at all.
Borrowing from your boss is not without its downsides though. The amount you borrow can be quite limited ‒ if you need to borrow a more significant amount, for example, to carry out some home renovations, then an employee loan is unlikely to be an option.
You may also be a little concerned about how it looks if you need to ask your employer for a loan. It’s one thing to work for an employer ‒ to owe them money too may make you feel more uncomfortable at work.
Alternatives to employee loans
If you only need to borrow a relatively small amount, then there are plenty of options. You could make use of a 0% credit card, which as the name suggests does not charge interest on your balance for a specific period.
Alternatively, you might be able to make use of a fee-free overdraft. This may mean you need to talk to your bank or move your current account, however.
It’s also worth looking to see if you qualify for membership of a credit union, as they can cater for smaller loans, often at low rates.
»MORE: Credit union loans
If you need to borrow a more significant sum, then it’s worth searching the market to see what rates you can get on a regular personal loan.
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John Fitzsimons has been writing about finance since 2007. He is the former editor of Mortgage Solutions and loveMONEY and his work has appeared in The Sunday Times, The Mirror, The Sun and Forbes. Read more