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Guide to Employee Loans: How They Work & Tips for Getting One

Jason Steele
Jason SteeleUpdated January 19, 2023
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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
If you need cash quickly, you may want to consider an employee loan. These loans are a way to get funds fast without incurring a lot of costs. However, loans for employees typically do charge interest, and not every employer offers them. Read on to learn more about how employer loans for employees work.

What Are Employee Loans?

Employee loans, sometimes referred to as employment loans, are essentially a cash advance. They are funds loaned to you by your employer that you repay with interest. Some employers provide these loans directly; others use a third-party company and offer loans for employees as an employee benefit. The loans are typically small — $5,000 or less.

How Do Employee Loans Work?

When you apply for an employee loan, the third-party company handling the loan may look at your employment and income information, and they may also review your credit. Interest on these loans can range from less than 6% to 19.9% or higher. Loan payments, including interest, will be taken from your paychecks until the amount you borrowed is fully repaid. The loan may be for a few months or up to a few years. If your employment ends for any reason before the entire loan is paid off, you still need to repay the money. Some third-party companies may withdraw your repayment directly from your bank account once you leave your employer.  

What Can Employee Loans Be Used For?

Employee loans are one of a number of ways to borrow money, and they can be used for almost anything. However, it’s typically wise to use them for unexpected expenses, special events, or emergencies. If you find yourself needing employee loans frequently, you may need to reevaluate your spending and saving habits.Here are a few reasons you might need employee loans: 

Medical Bills

If you have an upcoming medical procedure or existing medical bills that you need to pay, you could use an employee loan to help. However, before taking out an employee loan for medical bills, contact the medical provider to see if they are willing to negotiate your medical bills. For instance, your provider may be able to offer you a no-interest installment repayment plan.

Wedding Costs

The average wedding cost is approximately $34,000, so you may need extra cash to cover some of the expenses you’ll incur. If you have wedding deposits or payments that are due before your next paycheck arrives, an employee loan could help get you the money quickly so you can pay your vendors. 

Home Renovations

If you need to make emergency repairs or renovations to your home, an employee loan might come in handy. For instance, if a pipe bursts or your HVAC breaks, an employer loan could cover the sudden and unexpected expense. 

Car Repairs

Similarly, if your car breaks down, you may want to look into an employee loan. The costs of fixing a car can be hundreds or thousands of dollars, depending on what the problem is, and you simply might not have enough savings in your emergency account. 


Generally, it’s not a good idea to take out an employee loan to pay for a big vacation. However, if you’re in a pinch — say you need to purchase plane tickets before the fare increases or put down a deposit for a vacation rental so you don’t lose it — an employee loan could help you get the money quickly.Recommended: What Are Vacation Loans and How Do They Work?

Tips for Getting an Employee Loan

If you’d like to take out an employee loan, find out what the qualifications are, and make sure you meet them before applying. Will the company evaluate your credit and do a hard credit pull? It’s wise to know that in advance.If you’re approved for an employee loan, make sure you understand all the terms of the loan, including the interest rate and the length of the loan. 

How Can You Ask Your Employer for a Personal Loan?

If your employer offers an employee loan, there should be a procedure in place for applying. For instance, it may be available through your employee benefits portal.If your employer does not offer employee loans, you can speak to your HR department to see if it’s something they might consider offering in the future. 

Typical Requirements for Employment Loans

To qualify for an employee loan, you will need to meet the income, employment, and credit qualifications set by the third-party company. Some of these companies do a hard credit pull to check your credit, but others don’t. The requirement for how long you need to work at a job before being able to get an employee loan may vary, depending on your employer. If you’re not sure whether you qualify, reach out to your company’s HR department for more information. 

Pros and Cons of Employee Loans

Before applying for an employee loan, consider the pros and cons.
Employee loans have lower interest rates than some other short-term loans such as payday loansInterest rates may still be higher than you could get with some other loan options
It can be easier to qualify for employee loans than other loansYou are paying interest to borrow your own money
Some third-party employee loan companies offer financial education servicesSome employers may offer employee loans as a benefit instead of giving raises

Alternatives to Employee Loans

There are a number of alternatives to employee loans. Here are some options to consider:Credit cards could be a way to help cover emergency expenses. If you are able to pay your credit card bill off in full at the end of the billing cycle, you won’t owe interest. However, if you carry a balance on your card you will pay interest. And credit card interest rates tend to be high. If you decide to go with this option, use your credit card wisely and pay off your balance as quickly as you can.You could also take out a personal loan to get the money you need. Personal loans are offered by banks, credit unions, and private lenders. You can also get online personal loans from online lenders. You will need to qualify for a personal loan, and lenders have different criteria regarding your credit score, credit history, and income. You’ll also want to weigh the pros and cons of getting a personal loan. For instance, personal loans can provide fast access to cash and can be used for a variety of purposes, but they may have fees. Another way to get the funds you need is with a family loan. Borrowing money from relatives can save you money on high interest rates and fees. Family loans may be complicated, however. These loans can lead to tension between relatives if the loan is not repaid as planned. Spell out the loan terms in writing, and only borrow money from a family member if you are confident you can repay it in the agreed-upon time frame. Recommended: 10 Possible Benefits of Obtaining Personal Loans

Personal Loans With Lantern

If you decide that an employee loan is not the right fit for your situation, a personal loan might help you get the money you need with terms and rates that work for you. As you’re exploring personal loan options, Lantern can help guide you through the process. In our online marketplace, you can quickly and easily compare offers from multiple lenders at once to find the best one for your needs.

Frequently Asked Questions

Can your employer give you a personal loan?
How long do you need to work at a job to get a personal loan?
Can my employer give me an interest-free loan?
Photo credit: iStock/kate_sept2004

About the Author

Jason Steele

Jason Steele

Jason Steele has been writing about credit cards and award travel since 2008. One of the nation's leading experts in this field, he has contributed to dozens of personal finance and travel outlets and has been widely quoted in the mainstream media.
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