Should Employers provide a Payday Loan Alternative?
Payday loans are an American concept that has caught up with the rest of world in the recent times. It is a short term loan against an employee’s next pay cheque, an easy and fast way to handle emergency expenses. Though very handy, this loan incurs ridiculously high interest rates in addition to the administration fees that come along. Although there are several other payday loan alternatives such as credit payments, overdrafts, pawn broking, and wage advances; each of them have their own interest rates, late payment fines and penalties that only add on to the financial burden of the borrower. Then shouldn’t employers come to the rescue of their workforce during times of dire need?
Employers should in fact pitch in to provide interest-free payday loans, or advance payment alternatives against the employee’s monthly salary as the credit facilities. Although other lenders run a risk of defaults, employers can in fact adjust the payments over time as the employee is part of a permanent workforce. Employee emergency credit facilities not only tend to generate goodwill but also serve to improve productivity in the long run.
Those who accept payday loans from financial firms are often plagued by stress and anxiety. Working extra time to honour repayment options and bearing the brunt of high fees and interest rates often take a toll on their health, inevitably forcing people to take time off their regular work. Employers, by offering timely credit alternatives, can improve the morale of their staff. With financial needs met and repayment woes eased to a great extent, employees tend to focus more on their work, which tends to benefit the company in the process.
Payday Loan Alternatives
Payday loan variations or alternatives on behalf of the employer may include cash or cheque advances, zero interest rates, longer loan terms, variable repayment options such as one or more instalments, or simply payday loans at comparatively lower interest rates. Loan amounts may also vary based on the income and the overall financial health of an employee.
Repayments including interest and administration fees, however, cannot exceed the base rate of main banks plus 1 per cent if the loan is to be exempt from Consumer Credit Act 2006 (CCA).
While short-term interest-free loans are a viable lending option, employers may charge a nominal interest on long-term debts for the deal to be mutually beneficial. Employers should also enter into a written agreement with the employee on the repayment method before paying out the loan. Repayment instalments are usually deducted at source before the wages are paid to the employees. To put it short, payday loan alternatives are indeed beneficial to both the employers and the employees.