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Employer Loans: Do You Borrow From Your Employer?

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Employee Loans: Should You Take From Your Employer?
Employee loans can be a way to get quick cash in an emergencyHowever, do not make them a habit.


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Last updated on Mar 25, 2021

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If you're in a financial bind it's possible you should request the ability to advance your salary that some employers provide through a third party as part of their benefits packages.
These loans are a cost-effective method of borrowing, and could help you build credit. However, they are liable to charge interest and paying for an early access to your own funds can result in poor financial practices.
This article will provide information about employer-provided paycheck advances as well as alternative methods to access cash quickly.
Advances on your paychecks through your employer
HoneyBee, Salary Finance and TrueConnect offer personal loans that typically range from $500 to $5,000 -- through the employer's benefits portal.
These companies look at information about your income and employment to underwrite the loan however, they might also consider your credit. For instance, Salary Finance does a loan approval process for borrowers, however TrueConnect says it doesn't consider your credit score when you apply for loans that are less than $5,000. Both report payments to the credit bureaus. This means that paying on time can improve your credit.
The annual percentage rate on these loans can be double-digit. For example, Salary Finance charges APRs between 5.90 percent and 19.9 percent.
The terms of payment range from a few months to a few years, and loan payments are deducted from the employee's paycheck. If you terminate your employment however, you're still accountable to pay loan payments. A company may use the information on your bank account to get the loan repayment, if they can't get it from your paycheck, though they say they'll assist borrowers who leave their jobs.
Employer-sponsored paycheck advances
Pros
Access to cash at a low cost: With double- and single-digit interest rates These loans will likely to be cheaper in comparison to payday loans, which can have rates that can be as high as 400%.
Credit reporting: If the lender reports your payment to credit bureaus The loan can help you establish credit for the next time you need to borrow. It's not the ideal choice if your goal is to only borrow take advantage of it, but it's a benefit over different payday loan alternatives may not provide.
The financial education TrueConnect along with Salary Finance both offer financial education which will help you comprehend the situation and determine ways to enhance it.
Cons
Paying to borrow your own money: If you're paying the interest on an employer-sponsored loan, you're essentially taking out a loan with your own cash.
It's not a better benefit than a higher salary when you work for a company that offers this program as a benefit take a look at whether it's more beneficial than a higher income. If you're making use of these loans, consumer advocates say, you may be better off looking for a job that pays more instead.
Employee loans vs. loan apps
Loan apps like Earnin and Dave offer direct paycheck advances, which can be as high as a few hundred dollars. Instead of charging interest, these apps charge fees for subscriptions or tips.
It's a mobile application that asks for your timesheet and allows you to take out as much as $500 of money you've earned before your pay date.
allows you to borrow up to $200 when you have a spending account linked to it, or $100 if you don't, and debits you the loan value from the bank account on the next payday.
Both apps will ask you to contribute a "tip" as well as provide additional features like notifications when your balance on your account is low.
Unlike employees loans, these paycheck advance applications don't typically check your credit, and they don't automatically report payments to credit bureaus.
Similar to the employee loans, they're best used for emergencies that are small and infrequent. If you do decide to borrow from them, NerdWallet recommends declining the tip.
Loan options for employees loan alternatives
Think about the possibility of an employer loan as one of the many options for fast cash. Here are some to consider:
Credit union or bank loans: If your or provides personal loans and personal loans, it's a good place to start. The funds could be available within one week and aren't obligated to ask the employer to obtain this type of loan.
Online loans are also available. Online lenders offer and tailor their products for borrowers of all credit bands. Even if you have bad credit, you may qualify to receive an online loan based on other information. These loans can often be funded within the same day after you're approved, and amounts go as low as about $1,000.
See if you pre-qualify for a personal loan and it will not affect your credit score
Answer a few simple questions to get customized rate estimates from several lenders.



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Side gigs: Consider another job as a way to earn additional income. There are various options, from rideshare driving to taking surveys. This may not get you instant cash, but it's an effective option to earn cash without having to pay for it.
Circles of lending: you could form a with some friends or family members. In these circles, everyone pitches in some amount of money every month, and one receives the entire amount. This is a long-term commitment however, it could come in handy in the event that an emergency expense arises.
A family member or friend It's not always easy to , but it's one option to keep your credit and get a fair shake. You and a family member or friend could make a contract that includes the terms of repayment and the 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 allocates some of your paycheck to savings. An aim of 500 dollars for an emergency fund is a great place to start.
See your money all in one place
The NerdWallet application tracks your expenses and shows you how much you're spending on bill payments, food and travel, among others. It will also show you ways to save big.



The authors' bios: Amrita Jayakumar is a former writer at NerdWallet. She was previously employed by The Washington Post and the Miami Herald.


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







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