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The Employee Loans Program: Can you Borrow from your employer?

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The Employee Loan – Should You Borrow from Your Employer?

Employee loans are a great way to get quick cash in an emergency- but avoid making 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 ask for the possibility of an increase on your paycheck that some employers provide through a third party as part of their benefits package.

These loans could be a cheap option to borrow and they might assist in building credit. But they charge interest, and allowing early access to your own money can lead to unsustainable spending habits.

Here’s what to know about employer-provided paycheck advances as well as alternative methods to get fast cash.

Paycheck advances through your employer

HoneyBee, Salary Finance and TrueConnect provide small personal loans that typically range from $500 to $5,000 — through an employer’s benefits portal.

They look at your employment and income data to underwrite the loan However, they could also consider your credit. For instance, Salary Finance does a loan approval process for borrowers, however TrueConnect claims it does not take into account your credit score when you apply for loans of $5,000 or less. Both of them report payments to credit bureaus, so the timely payment can boost your credit.

Annual percentage rates on these loans can reach double digits. For instance, Salary Finance charges APRs between 5.90 percent and 19.9 percent.

The length of the loan can range between a few months and several years. loan payments are deducted from the employee’s paycheck. When you end your employment however, you’re still accountable in loan payments. A business could make use of the information on your bank account to collect the repayment when they are unable to collect the money from your paycheck, though they say they’ll assist borrowers who quit their jobs.

Employer-sponsored pay increases

Pros

Low-cost access to funds: With double- and single-digit interest rates These loans are likely to be less expensive in comparison to payday loans, which can be as high as 400%.

Credit reporting If the lender reports your payments to the credit bureaus, the loan will allow you to build credit the following time to take out a loan. This isn’t the most ideal option if your goal is to only borrow however, but it’s a great benefit over different payday loan alternatives may not provide.

The financial education TrueConnect along with Salary Finance both provide financial education that can help you better understand your financial situation and identify ways to improve it.

Cons

Paying to borrow your own money: If you’re paying interest on an employer-sponsored loan in essence, you’re borrowing your own cash.

This isn’t a better offer than more money when you work for a company that offers this program as a benefit think about whether it’s more beneficial over a higher salary. If you’re using these loans, consumer advocates say that you might be better off searching for an employment that pays higher instead.

Employee loans compare to. loan apps

Loan applications like Earnin and Dave offer direct pay advances, usually up to a few hundred dollars. Instead of charging interest, they charge the user for subscription fees or tips.

is a mobile app that requires your time sheet . It lets you take out as much as $500 of the cash you’ve earned prior to the pay day.

lets you get a loan of up to $200 when you have a spending account with it, or $100 if you don’t and then debits you the loan value from the account on your next payday.

Both apps will ask you to contribute a “tip” as well as provide additional options, such as notifications in the event that your balance is low.

Unlike employees loans and payday advances, these applications don’t typically check your credit and don’t automatically report your payments to credit bureaus.

Like employee loans, they’re best used to cover small, short-term emergencies. If you do borrow through them NerdWallet suggests avoiding the tip.

Loan options for employees loan alternatives

Consider the possibility of an employer loan as one of many fast-cash options you have. Here are some to consider:

Credit unions and banks loans: If your or provides personal loans and personal loans, it’s a good place to start. You could get your funds within one week, and you don’t have to rely on the employer to obtain this kind of loan.

Online loans are also available. Online lenders offer and tailor their products to customers of all credit categories. Even if you have bad credit, you might be eligible for an online loan based on other information. These loans typically can be repaid within the same day after you’re approved, and can range down to as little as $1,000.

See if you pre-qualify for personal loan – without affecting your credit score

Simply answer a few questions to get customized rate estimates from several lenders.

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Side gigs: Consider another job as a way to earn an extra income. It can range various options, from rideshare driving to taking surveys. This may not get you immediate cash, but it’s a way to get money without having to pay for it.

The lending circles may form a with some acquaintances or family members. In these circles the participants each contribute a certain amount each month, and one person gets the entire pot. It’s a longer-term commitment, but it could be handy when an emergency expense arises.

A friend or family member It’s not easy to do, but it’s a great way to preserve your credit and get an honest shake. You and a family member or friend could make an agreement with the terms of repayment and the interest.

Preparing for next time

If you are planning to borrow next time, consider building a budget now that includes an allowance for savings, needs and wants. NerdWallet recommends the, which allocates some of your paycheck to savings. The goal is $500 for an emergency fund is a good place to start.

All your money is in one place

The NerdWallet app tracks your expenditures and displays the amount you spend on food, bills, travel and more. It will also show you ways to save big.

The authors’ bios: Amrita Jayakumar used to write for NerdWallet. She was previously employed by The Washington Post and the Miami Herald.

Annie Millerbernd works as a personal loans writer. Her writing has been featured on The Associated Press and USA Today.

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