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Employee Loans: Should You Borrow From Your Employer?

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Employer Loans: Can You Take from Your Employer?
Employee loans can be a option to access cash in an emergency- but be careful not to make them a routine.


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Last updated on Mar 25 2021

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If you're struggling financially You might want to request the possibility of an increase on your pay that some employers provide through a third party as part of their benefits package.
These loans can be a low-cost method of borrowing, and can aid in building credit. But they do charge interest, and paying for early access to your own funds can result in poor financial habits.
Find out more about payroll advances offered by employers as well as alternative methods to receive cash fast.
Paycheck advances are made through your employer
HoneyBee, Salary Finance and TrueConnect offer personal loans that typically range from $500 to $5,000 through an employer's benefits portal.
They look at your information about your income and employment to underwrite the loan however, they might also consider your credit. For instance, Salary Finance does a to accept borrowers, but TrueConnect states that it does not consider your credit score for loans of $5,000 or less. Both report payments to the credit bureaus, which means the timely payment can boost your credit.
The annual percentage rate on these loans can be double-digit. For instance, Salary Finance charges APRs between 5.90% and 19.9 percent.
The terms of payment range between a few months and a few years, and loan payments are deducted from the salary of the employee. When you end your employment however, you're still accountable to pay loan payments. A company may use your bank account details to get the loan repayment, when they're unable to get it from your paycheck however, they've stated that they'll help borrowers quit their jobs.
Pros and cons of employer-sponsored advance payments to your paycheck
Pros
The loan is low-cost and easy to access. With double- and single-digit interest rates, these loans are likely to be more affordable than payday loans, which can be that can be as high as 400%.
Credit reporting: If the lender reports your transactions to credit bureaus and credit bureaus, the loan can help you establish credit for the next time you want to borrow. This isn't the most ideal option when you want to simply get a loan take advantage of it, but it's a benefit that other payday loan alternatives may not offer.
Financial education: TrueConnect and Salary Finance both offer financial education which can help you understand your situation and find paths to enhance it.
Cons
Paying to borrow your own cash: When paying interest on a company-sponsored loan it's basically paying to borrow your own cash.
This isn't a better offer than having more money when you work for a company that offers this benefit as a perk, consider whether it's a better perk over a higher salary. If you're taking advantage of these loans according to consumer advocates that you might be better off looking for an employment that pays higher instead.
Employee loans are different from. loan apps
Apps for loans such as Earnin and Dave also provide direct paycheck advances, typically up to 100 dollars. Rather than charging interest, these apps charge subscription fees or tips.
It's a mobile application that asks for your time sheet . It lets you take out as much as $500 in amount you earned before the pay day.
allows you to borrow up to $200 if you have a spending account linked to it, or $100 if not, and then debits your loan sum from your account on the next payday.
Both apps will ask you to give a "tip" and offer other features like notifications in the event that your balance is low.
Unlike employee loans, these paycheck advance applications don't typically check your credit and don't automatically report payments to credit bureaus.
Similar to employee loans These are best used for emergencies that are small and infrequent. If you decide to take out a loan the funds from these lenders, NerdWallet suggests avoiding the offer.
Loan options for employees loan alternatives
Consider an employee loan as just one of many options for fast cash. Here are some to consider:
Credit unions and banks loans If your bank or credit union provides personal loans which are available, it could be a good place to start. The funds could be available within a week, and you don't have to rely on your employer for this type of loan.
Online loans: Online lenders also offer products that are tailored for borrowers of all credit ranges. Even if you've got bad credit, you might be eligible with an online loan depending on other data. These loans are usually paid on the same day or even the next the day following your approval and can range from as low as $1000.
Find out if you're pre-qualified for a personal loan - without affecting your credit score
Just answer a few questions to get personalized rate estimates from multiple lenders.



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Side gigs: Consider an additional job that can earn additional income. It can range opportunities to work as a rideshare driver or take surveys. This may not get you instant cash, but it's a option to earn cash without having to pay for it.
Lending circles: You can create a group of family members or friends. In these circles the participants each contribute a certain amount of money each month, and one person is the one to receive the whole pot. It's a commitment for the long term, however, it could come in handy when an emergency need arises.
Borrow from a relative or friend It's not always easy to do, but it's a great method to protect your credit and receive a fair shake. If you and a relative or friend can make an agreement that contains conditions for repayment as well as interest.
Preparing for next time
Before you take out a loan the next time, think about creating an initial budget that has an allowance for savings, wants and needs. NerdWallet suggests the , which will allocate a portion of your pay to savings. A goal of $500 in your emergency funds is great place to start.
You can see your money all in one place
The NerdWallet app tallies up your expenses and shows you how much you're spending on things like bills, food and travel, among others. Plus, it will show you ways to save big.



About the authors: Amrita Jayakumar used to write for NerdWallet. She previously worked at The Washington Post and the Miami Herald.


Annie Millerbernd is a personal loans writer. Her work has appeared on The Associated Press and USA Today.







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