An employer loan is granted by the employer to his employee. The payments are outside the agreed monthly salary. They are not part of the wage. The employer loan already has a long history. Because it has always been normal for his “masters”, for example because of illness or famine, to ask for a loan.
Introductory overview of the topic Credit by the employer
- In-depth information on the subject of credit from the employer
- The employer loan agreement
- Special forms for loans from employers
- How are possible pitfalls in the issue of loans from the employer
- What to do if bad Private credit / credit rating?
- Current figures and interest rate developments
Introductory overview of the topic Credit by the employer
In the present time, the motives for a request for an employer loan have changed. Now, most of the necessary purchases for a car or for housing items are reasons for the demand for an employer loan. The size of the company in granting loans to employees is crucial. After all, not every company can afford to pay employer loans to its employees.
For example, small craft companies in particular see themselves as being exposed to a constant financial struggle for survival, and in most cases simply can not afford to lend loans to employees. Medium-sized family businesses with a very close bond with their employees are much more likely to make such a loan available.
By contrast, large companies with a largely anonymous, interpersonal corporate structure are more likely to shy away from distributing employer loans. The employee is considered as a factor of work and profitable economic entity. Private needs are usually not of entrepreneurial importance. Furthermore, the inhibition threshold of the employees alone to lead a demand for such a loan experience is also rather high, due to the lack of personal ties between the employee and employer.
Employees in the civil service even have decisive advantages in the area of employer credit, as there are portals for financing both for civil servants and employees in the public sector. With these portals, the employees in the public service can find out on their own whether they are already eligible for such a loan.
In-depth information on the subject of credit from the employer
The employer loan agreement
In recent years, the Federal Ministry of Finance has adopted the issue of employer loans and defined clear guidelines and contractual components in order to find a clear distinction between when it comes to an employer loan and when it comes to a wage advance.
An employer loan is always available if there is an unscheduled payment. A credit agreement must be concluded in which all relevant parties are named. Relevant parties are the employee and the employer. The deciding factor is the loan amount. However, with regard to the amount, it should be noted that the legislature expects the payout sum and not the repayment amount. In the further course, the interest rate for the employer loan must be determined. It should be noted that the employer does not have to charge interest. However, if the employer does so, it is important to note that the monthly interest savings of more than € 44.00 per month must be taxed as a salary increase.
If an interest rate is charged, it should be noted that the interest savings of the interest rate charged, if it is less than 4% of the customary effective interest rate, must also be normally taxed as a salary component. Likewise, the term of the lending business should be determined. The last very important component concerns regulations regulating the repayment modalities in the event of a separation of the employment relationship. In practice, in particular if the duration is longer than the employment relationship, a market interest rate has been established.
Special forms for loans from employers
The most important characteristic of an employer loan is that it is the employer’s sole employer. In practice, a pure employer loan in which the employer pays the entire loan amount to the employee and then reclaimed by installments and fixed term and the form of the so-called interest subsidies for bank loans distinguished. In principle, tax law aspects must be taken into account.
How are possible pitfalls in the issue of loans from the employer
The loan from the employer certainly has advantages and disadvantages. It is important to think about three factors in this regard in advance. What about the emotional, tax and rational factors?
- The emotional area
An employer loan apparently gives the employer relatively much power over the employee, it seems at first. Because employers often think that they can increase the employee’s loyalty to the company and at the same time be sure of the employee’s loyalty. In such situations, however, the employee initially has attachment anxiety, as in any good relationship.
He is usually confused at this point, because the bond puts him under pressure. What happens if the employee chooses an alternative job offer during the term of the loan, then they diverge well. Will financial concerns be too demanding? In parallel with the employee’s thoughts on whether to make that commitment, in the event of bad economic situations in the future, the employer will also think twice about whether to terminate his debtor, or at least to his colleagues.
He will simply want to counteract a debtor’s insolvency here. The tighter emotional level that undoubtedly arises here is also called the Benjamin-Franklin Effect. Because it inevitably creates a positive mood and emotional closeness.
- The tax area
When assessing the tax environment, it is usually easy to see that it makes sense to take out an employer loan rather than opting for the bank’s classic financing option. Employees can participate monthly in an allowance of € 44.00 per month. In addition, employees benefit from a generally more favorable effective interest rate.
- The rational area
The employer can use his credit decision rationally to decide whether he really wants to make money available to his employees. He usually knows the employee well and can weigh quite rationally whether an insolvency could threaten. Both the employee and the employer take a risk on an employer loan.
In the case of a culpable dismissal of the employee, the employee may well expect that the remainder of the loan amount, which is still open, is due immediately. A wage deduction is feasible here. However, it is questionable that the open wage is sufficient. Here comes the question of the balance. An ex-employee looking for a job usually has no exorbitant financial resources in the short term, so the actual repayment is questionable.
In addition, the employee can also decide on a job change within the credit period and then move on. Again, the former employer then has to wait for his money within the agreed repayment period. The risks of the employees are described as similarly complicated.
What to do if bad Private credit / credit rating?
The Private credit has only a minor role in a real employer loan, without the interposition of another bank for the loan payment. Rather, the decent impression and the personal commitment to the topic play a role here. An employer loan is a successful alternative, especially if someone does not want to further burden their Private credit or credit rating.
Current figures and interest rate developments
Interest rate developments on the market are very positive for borrowers. The prime rate is stable low and the banks pass the low interest rates on the market so that reasonably priced loans can be spent. In general, taking out a loan becomes problematic only when there are problems with the Private credit and the credit rating. Then consumers have to turn to alternative investors. There are alternatives on the Internet. There are a number of online portals that provide private investors and prospective creditors. But here, too, the interest rates are quite high.
Swiss loans are another option for borrowing. Private credit entries are not of interest here. It concerns the pure creditworthiness and income situation of the applicant. However, Swiss banks can pay these loans in the form of high effective interest rates.
The way to the employer, the demand for a loan amount X can be quite advisable here. In addition to all the emotional or even rational disadvantages that are first of all focused, the employer is in a position to invest in the employee at very favorable conditions in the form of a staff credit. However, the balance is up to each one.