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Employer Loans: Do You Borrow From Your Employer?

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The Employee Loan - Should You Take from your employer?
Employee loans are a great way to get quick cash in an emergency -- but do not make them a habit.


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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 Some employers provide this through a third-party as part of their benefits packages.
These loans are a cost-effective option to borrow and could help you build credit. But they charge interest, and the cost of an early access to your own money can lead to poor budgeting practices.
This article will provide information about employer-provided paycheck advances as well as alternative methods to receive cash fast.
Advances on your paychecks through your employer
HoneyBee, Salary Finance and TrueConnect provide small personal loans that typically range from $500 to $5,000 -- via the employer's benefits portal.
The companies analyze the income and employment data to help underwrite the loan However, they could also take into consideration your credit. For example, Salary Finance does a to accept borrowers, but TrueConnect claims it does not take into account your credit score when you apply for loans of less than $5,000. Both of them report payments to credit bureaus. This means that paying on time can improve your credit.
The annual percentage rate on these loans can be double-digit. For instance, Salary Finance charges APRs between 5.90 percent and 19.9 percent.
The terms of payment range from a few weeks to some years. loan payments are taken out of the employee's paycheck. If you quit your job, you're still responsible to pay loan payments. A business could make use of your bank account information to collect repayment when they are unable to collect it from your paycheck, though they say they'll assist borrowers who quit their jobs.
Pros and cons of employer-sponsored pay increases
Pros
Access to cash at a low cost: With both double- and single-digit interest rates, these loans are 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 is able to report your transactions to credit bureaus and credit bureaus, the loan will help you build credit the following time you want to borrow. It's not the ideal choice if your goal is to only borrow however, but it's a great benefit over other payday loan alternatives may not provide.
The financial education TrueConnect along with Salary Finance both offer financial education which can help you better understand your situation and find paths to improve it.
Cons
You're borrowing your own money: If you're paying interest on a company-sponsored loan, you're essentially borrowing your own cash.
It's not more beneficial than having more money If your employer provides this benefit as a perk take a look at whether it's more beneficial than a greater income. If you're taking advantage of these loans consumers' advocates suggest that you're better off seeking jobs that pay more instead.
Employee loans vs. loan apps
Loan apps like Earnin and Dave also provide direct paycheck advances, typically up to a few hundred dollars. Rather than charging interest, they charge fees for subscriptions or tips.
is a smartphone app that requires your timesheet and lets you make cash withdrawals up to the amount of $500 of amount you earned before the pay day.
lets you borrow up to $200 when you have a spending account linked to it, or $100 if you don't, and debits you the loan sum from your account on the next payday.
Both apps will ask you to give a "tip" as well as provide additional features , like alerts when your account balance is low.
Unlike employee loans, these paycheck advance applications do not usually look at your credit score, and don't automatically report payments to the credit bureaus.
Similar to the employee loans These are best used for emergencies that are small and infrequent. If you do borrow the funds from these lenders, NerdWallet advises against the tip.
Employee loan alternatives
Consider the possibility of an employer loan as just one of numerous fast cash options available to you. Here are some to consider:
Credit unions and banks loans: If your or offers personal loans, that may be an ideal place to begin. You could get your funds within a week, and you aren't obligated to ask your employer to get this kind of loan.
Online loans are also available. Online lenders offer and tailor their products to borrowers in all credit bands. Even if you have bad credit, you could be eligible to receive an online loan with other information. These loans can often be funded the same day or day after you're approved, and the amount can be from as low as $1000.
Check if you are pre-qualified for an individual loan - without affecting your credit score
Answer a few simple questions to receive customized rate estimates from several lenders.



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Side gigs: Consider an additional job that can earn an extra income. There are from rideshare driving to taking surveys. While this may not provide you with instant cash, but it's a method to earn money without paying for it.
Lending circles: You may join with a few friends or family members. In these groups each person contributes a certain amount each month, and the person who contributes most is the one to receive the whole pot. It's a commitment for the long term, but it can come in handy when an emergency expense arises.
Borrow from a friend or family member It's not easy to get, but it's an effective way to preserve your credit and get an equitable deal. If you and a friend or family member can make a contract that includes repayment terms and interest.
Preparing for next time
Before you take out a loan the next time, you should consider creating a budget now that includes the possibility of saving for needs and wants. NerdWallet suggests the , which allocates some of your paycheck to savings. A goal of $500 as an emergency fund is a great place to start.
All your money is all in one place
The NerdWallet application tracks your expenses and shows you how much you're spending on food, bills and travel, among others. It will also show you ways to save big.



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


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







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