With this type of corporate loan, you conclude a contract with your employer that can bring numerous benefits to both sides. This type of loan is offered particularly in the financial and public sector, but also in other professional sectors. In particular with larger amounts, such as buying a house or building finance, it can be very worthwhile for you to ask your employer about such a loan.
There is also the possibility of an interest subsidy from the employer. This is not a conventional loan, but a relief for the employee from the interest, which of course would have to be taxed. However, lower interest rates are not the only benefit of such a loan. An employer loan benefits both parties. However, you should still get advice on other credit options and compare all alternatives.
What are the benefits of the employer loan for employees and employers?
Of course, such a loan is not distributed indiscriminately to all employees for no reason. The granting of an employer loan shows respect and appreciation of your work and not every employee benefits from such an offer. For example, the company can refuse to grant such a loan to an employee if wage garnishment is ordered or negative credit bureau entries exist.
However, a company may not make such an employer loan available to employees on different terms. For example, it is not permissible for a full-time employee to have better conditions than a part-time employee.
An employer loan has the following advantages compared to a conventional bank loan:
- usually benefits from lower interest rates.
- is valued by the employer by granting a lucrative loan.
- binds the employee to the company in the long term.
- increases its popularity among employees.
What does the employer loan bring with home finance?
Most employer loans are earmarked. This means that you as an employee receive a loan for the purchase of a certain thing. There is one exception to this, because the employer cannot give you a loan to replenish the company’s inventory. However, it is possible to get a loan to invest in the company if it goes public. In this case, however, the employer is obliged to inform you about the risks of such investments before granting the loan.
Tip: It is worth asking the employer for a separate loan, especially for larger loans such as construction finance. Because with an internal corporate loan, the interest is usually a lot lower than with conventional bank loans, which ultimately means that you have to repay a comparatively smaller amount.
However, you should make sure that non-cash benefits have to be taxed at the tax office, as otherwise communication problems can arise. In the event of non-taxation, the tax office could assume that the loan – or rather the interest advantage of the loan compared to the bank loan – is part of the wages. However, there are exceptions to this. If the loan amount is less than USD 2,600, the employer can pay it out as an interest-free loan, for example as an advance on salary.
What is the interest rate on an employer loan?
The interest on an employer loan is based on the standard effective interest rate and can be reduced by the employer by four percentage points if the loan is granted.
Caution should be exercised if, for whatever reason, the employer waives part of the repayment of the loan or interest. In this case, this amount is considered wages and must be taxed as a one-off payment.
It is also very important that you enter all important details in writing when entering into such a contract. In any case, such a contract includes the following statements:
- personal data of both parties
- the type of loan
- the term of the loan
- Duration of interest rate setting and amount of interest
- Date, place
- Signatures of both parties
What is an interest subsidy?
In the case of an employer loan, the company grants you a loan with (mostly) favorable conditions. In the case of an interest subsidy, the boss pays all or part of the interest on your loan. In this case, care must be taken to ensure that this interest is taxed as wages. Of course, this must be reported to the tax office, as it is part of the wages. An interest subsidy therefore differs from an employer loan.
What happens when the employment relationship ends?
Even after receiving an employer loan, you may want to change your career. However, keep in mind that the employer can adjust the interest rate if you terminate the employment relationship. Of course, you must observe the statutory notice periods.
An interest rate adjustment can also be made if the employer quits you. However, it does not have to be that the employer loan is terminated together with the employment contract. The loan can continue even if you are no longer in the company. In this case, it is also very likely that an interest rate adjustment will be made. If the employer loan with termination of work is also canceled, the notice period is three months.
Employer loans in home finance
It has already been mentioned briefly that the employer loan is often granted for a specific purpose. The loan offers particular advantages when it comes to mortgage lending. Of course, you cannot finance the entire property with the loan, but at least part of it. And: If you also take out a bank loan, the employer loan may be rated as equity:
- You take out a loan from the employer in the amount of 10,000 dollars. In addition, you bring 30,000 dollars into the financing yourself.
- At the bank, you indicate that 40,000 dollars of the financing requirements are already covered.
- The lower loan amount gives you better conditions for the real estate loan from the bank.
What you have to consider with the employer loan
An employer loan is worthwhile in most cases , but you should compare the different loan options very carefully and conscientiously. You should not only pay attention to the amount of the contribution, but also to the duration, the interest rate and the duration of the interest rate setting. If possible, consult an independent financial advisor and discuss the various options and loan conditions with him. Obtaining a third, impartial opinion often highlights possible previously overlooked details.
If an employer loan was not possible in your company, there would still be the possibility of an interest subsidy . Since this alternative is not a real loan, your employer may be more likely to agree to it. With an interest subsidy, you would have to pay less or no interest at all. Although you must tax the subsidy as a monetary benefit, the bottom line is that the solution is usually worthwhile. Consider all options and think carefully about which financing method is best for you.