When someone needs some help paying for their expenses, there are several places to look. For some people, their boss isn’t the first choice that comes to mind. But getting a loan directly from an employer is something some employers offer. For example, Australian employers often offer off-the-books or formal loans in small amounts averaging $1,102.
What Are Employee Loans?
Employee loans are personal loans arranged and/or provided by an employer to an employee. Some employers may offer formal loans in categories meant to help employees cover basic expenses. One common example of an employee loan is a small lump sum loan to pay for commuting expenses.
Employee loans are normally small-sum loans with little or no interest. Most employers aren’t in business to make interest off their own employees. But some employers find it worthwhile to offer employees an avenue to afford their necessary expenses and continue being good employees.
In other cases, employers don’t provide loans themselves but they partner with third parties to provide them. This is often the case with things like advances on salaries. In most cases, the employee “pays the employer back” by accepting temporary salary deductions.
Any of these loans arranged or provided by an employer is typically called an employee loan. But there are several different types of employee loans. Let’s look at some common examples.
Public Transport Loans
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Many employers offer interest-free loans for employees to purchase a season ticket or similar product for public transport. The ticket normally makes it less expensive for someone commuting every day to take a bus or train. But that upfront cost can be an issue for some people, leading employers to offer simple financing arrangements.
Employees pay for a season ticket through an employee loan, then pay it back over a short period through salary deductions. In the long-run, this arrangement saves the employee money while making their transportation expenses manageable.
The price of the ticket is normally already repaid by the time it expires. If paid through salary deductions or an interest-free loan, the total cost shouldn’t be more than the cost of buying the pass upfront.
Paycheck Advance
Advancing a paycheck is something employees often ask their employers for. Sometimes employees would prefer not to wait until payday or have more pressing expenses before it arrives. A paycheck advance or salary advance is a formalized arrangement to handle these situations, though some employers offer off-the-book arrangements.
Some big employers offer standard processes for applying for an advance on your paycheck. The arrangements often involve third parties who offer the actual loan. The employer’s role is one of a guarantor, as they confirm the employee has a regular paycheck and can use deductions from it to ensure full repayment.
In this case, the employer doesn’t offer an employee a loan directly. Instead they just pay back the loan on the employee’s behalf through salary deductions.
Like other payday loan options, employee paycheck advances are meant to be short-term. They cover immediate expenses that arise before the regular payday arrives.
Many companies offer internal employer salary advance schemes. This streamlines the process for employees who need advances. It also offers them a strong alternative to payday loans and similarly expensive arrangements.
Other Arrangements
Given the nature of employee-employer relationships, it’s uncommon for other kinds of arrangements than those explained above. Employees don’t normally offer loans larger than $10,000 and they normally don’t want to be in a long-term lending arrangement that could outlive an employee’s labor contract.
Consumer Loans & Consolidation Loans
Consumer loans are the main alternatives to employee loans. While some old alternatives, like payday loans, are prohibitively expensive, you can now find a balance between speed and affordability with online lending platforms. You can find the best loan products that you qualify for with a quick search and pre-approval process. That means you get the funds quickly, normally before your next paycheck. You can get a consumer loan in Sweden or Norway, for example, in a matter of days, with approval in under 24 hours.
Some of the most popular loans to apply for as a regular employee are consolidation loans. If you have too many high-interest debts, especially credit cards, they can reduce your burden and total interest rates.
Consolidation loans are single lump-sum loans you take to immediately pay off your other debts. This can immediately improve your credit, as you will have paid off several debts and have fewer outstanding. Then, you simply repay the one loan over time. You can also get a consolidation loan, for example in Sweden or Denmark, within a few days, or even on the same day.
Comparing Options
Employers often offer better arrangements than most lenders would. But if you don’t have the financing options you’re looking for through your employer, you should be able to find them elsewhere.
Every kind of loan you could conceivably take to handle personal cash flow issues can be found and compared in just minutes online. So, in the worst case, just have a look at the employee loan alternatives that are widely available on the web.
