Employer loans – benefits, possible risks and interest

An employer loan can be a good and meaningful alternative to a standard bank loan. Many employers give such an “employer loan” to their employees to strengthen the commitment of these workers or as a gesture of appreciation. But even for an employer loan, it requires a loan agreement between the two parties, which fixes all conditions and arrangements fixed and written. A loan from the boss is often an uncomplicated financing option. We will show you exactly what you need to know about this form of loan and how it will be treated in taxation terms.

Interest-free loan? – What is an employer loan?

Interest-free loan? - What is an employer loan?

An employer loan is a loan that companies and companies grant to their employees. It is not necessarily an interest-free loan, but in most cases the employer loan has a lower interest rate than a normal house bank loan.

The main concern for granting employer loans is to tie employees to the company, because long-term and satisfied employees are an important part of the company’s success. It is not an interest-free loan, but it is certainly a good way to give an employee appreciation and a secure job.

When it comes to setting the loan interest, employers focus on the market interest rate, the so-called benchmark interest rate. In order to specify this interest rate, the latest published effective interest rates of the Fungers Bank are used.

However, this is only an average. At the conclusion of the contract, the employer can make an individual decision regarding the interest rate and even make a discount of four percent. Of course, the employer has the option of specifying no interest at all. In such a case, it is actually an interest-free loan.

Personal loan – what conditions are there for the claim?

Companies are not required to provide an employer loan, a so-called personal loan. However, if granted, the Employees Equal Treatment Act must be taken into account. This means that the use of such a personal loan is available to all employees, regardless of whether a full-time or part-time employment is exercised. For employees, therefore, comparable contractual conditions must prevail, but there is no legal entitlement to a loan. The boss may refuse to grant an employer loan if, for example, he already has a wage seizure.

Does a purpose have to be mentioned?

The indication of a purpose of use is not required by law. Over time, however, the approach has emerged that employer loans are preferred earmarked. This means that the capital is to be used exclusively for the said earmarking. Possible purposes for employee loans are, for example, the acquisition of a property, the purchase of a new vehicle or further education. Likewise, there is no legal limit to the amount of the loan.

A classic example here is the financing of various employee training courses. The costs can be between 200 and 2000 euros on average. Some employers now even have special financing programs for the purchase of home ownership. There is therefore no maximum amount limit. The employer can individually decide which loan amount he can and wants to give.

Employer loan and loan agreement

In order to avoid misunderstandings and to exclude risks as far as possible, it is important to record all agreements made in writing in a loan agreement. The contract must specify the amount of the loan, the term, the agreed interest rate, the repayment modalities, as well as arrangements for special repayments and termination. Furthermore, the loan agreement must govern the further course of action if the employee leaves the company before the loan amount has been fully repaid. The written loan agreement is a legally effective hedge for both the lender and the borrower.

Is an employer loan a good financing alternative to the normal house bank loan?

A staff or employee loan certainly offers many advantages. First, this form of loan is usually very low interest. Although the boss is orienting himself to the interest rate on the customary lending rate, his loan offer may well be lower. This shows a significant impact especially with high loan amounts. Smaller loan amounts are awarded by many companies without further credit checks or collateral.

The regular income of the employee is sufficient in many cases as collateral for the requested loan. The house bank has a completely different approach and often requests many documents and evidence in order to be able to further check the loan request. An employer loan is thus a good and uncomplicated alternative to traditional bank loans.

However, a comprehensive credit comparison is worthwhile in any case! The online credit comparison is non-binding, fast and free of charge and offers a comprehensive overview of current credit offers on the financial market. These loan offers can then be compared to the bid by the boss.

Cash Benefit – Tax treatment of the employer loan

If an employer grants its employees a low-interest or even interest-free employer loan, it is a benefit in kind that must be taken into account in the salary and payroll accounting system. The effective interest rate for the employer loan must be less than five percent. Furthermore, at the end of the payroll period, the loan debt can not exceed an amount of 2,600 euros.

The so-called “pecuniary benefit” thus denotes a form of remuneration that goes beyond the mere employee salary. The tax conditions must be precisely regulated in the loan agreement, so that the tax office does not classify the entire loan amount as a pecuniary advantage. Interest advantages for the employee, in the context of an employer loan, are classified as monetary benefits. The difference between the usual interest rate on the financial market and the loan interest actually granted decides on a possible monetary benefit. In principle, the interest rate should apply to the entire duration of the loan contract if the employer and the employee have not agreed on a variable interest rate.

A pecuniary benefit is therefore calculated using the current effective interest rate on the credit market. The amount of this effective interest rate can be obtained at any time from your own bank. The Fungers Bank also provides further information online.

Employer loans – these are the advantages and disadvantages of this form of loan An employer loan has a number of advantages for both employers and employees:

1.) An employer loan is a sign of appreciation by the employer for his employee. In today’s job market, highly skilled and loyal employees are increasingly sought after. Anyone who wants to achieve close and long-term employee loyalty as a company can score well with an employer loan.

2.) For the employee, this form of loan is a straightforward and cheap way of financing. It is often easier and less time-consuming to get an employer loan than to apply for a normal house bank loan.

3.) An employer loan does not appear in credit bureau, so borrowing from an official credit institution is much easier.

Of course, there are also risks and disadvantages associated with an employer loan:

1.) It can happen again and again that an employee leaves the company prematurely while the loan is not fully repaid. In such a case, the signed loan agreement will continue to be valid. The conditions will continue to exist. This also applies to an employer-related termination.

2.) Employees who take out a personal loan should be aware that they are becoming dependent on the company. If the loan agreement is terminated properly, it can even happen that you have an immediate repayment claim when leaving the company.

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