What is Employee Loan Agreement?

An employee loan agreement is a contract between employer and Employee that outline the terms and conditions of a loan made by the employer to the Employee. The loan agreement template typically includes the amount of the loan, the repayment schedule, and any interest payments. Suppose anyone is required to secure the loan. The Agreement should be tailored to the Employee’s specific situation and signed by both parties to ensure that the terms are clear and binding.

StartupHR Toolkit helps you to create loan agreements in an easy way also you can download other HR policies to protect your organization. The Toolkit offers a range of features, from employee onboarding to the exit process, that can help startups save time and money. Additionally, it helps you to Customise policies, and HR Documents, according to your requirements.

Objective

An employee loan agreement template is to ensure that the terms and conditions of a loan are clearly defined and mutually agreed upon by the Employee and employer. This Agreement helps to protect the interests of both parties by clearly stating the terms of the loan, such as the loan amount, repayment schedule, payment amount, interest rate, late payment fees, and any other applicable fees.

Eligibility for a Loan

The eligibility of a loan given to an employee depends on the specific lending institution and its requirements. In general, eligibility for a loan typically requires the following criteria:

1. The Employee must be employed for at least six months.

2. The Employee must have a regular, steady income and the capability to repay the loan.

3. The Employee must have a good credit score.

4. The Employee must have valid identification.

5. The Employee must provide proof of residence.

6. The Employee must have a valid bank account.

7. The Employee must be of legal age.

8. The Employee must meet any other requirements the lending institution sets.

9. The maximum amount of employee loans is for a specified purpose. For instance: For marriage, medical emergencies, or the purchase of a vehicle.

These requirements may vary depending on the particular lender and the type of loan the Employee is applying for.

Eligibility Amount and Repayment

1. The loan amount provided will equal the Employee’s gross salary for.

2. Requests for a loan amount beyond the set limit will require approval from the Human Resources and <Management/Finance Head>.

3. Money will be credited to the Employee’s salary account, or a cheque will be issued in their name; payment to third parties is not permitted.

4. Loan repayment will be made through monthly deductions from the salary over a set period.

5. Employees may apply to their HR for a loan, and the amount will be deducted in installments from their salary.

6. The installment deductions will begin in the month following approval of the loan.

7. Repayment of the loan balance, either in full or extra installments, must be reported to HR, who will facilitate the repayment.

8. There will be no penalty for prepayments.

9. An employee may only apply for one loan at a time or a new loan while still repaying an earlier loan.

10. The Employee may only apply for another loan a year after finishing the previous loan’s payment.

11. Loans approved for a specific goal can only be used with the written Agreement of the Management.

Procedure of an Employee Loan Agreement

1. Determine the loan amount and purpose:

Estimate the amount of loan an employee needs and the purpose for which it should be used.

2. Calculate the risk associated with the loan:

Calculate the potential risks associated with granting a loan to an employee.

3. Set eligibility requirements:

Establish the eligibility criteria for employees to receive loans, such as credit score and employment tenure.

4. Check credit history:

Verify the Employee’s credit history and other financial information to assess the risk of granting the loan.

5. Establish repayment terms:

Set the repayment terms for the loan, including the repayment period and interest rate.

6. Sign loan agreement:

Draft and sign a loan agreement between the employer and Employee.

7. Disburse loan funds:

Disburse the loan funds to the Employee following the loan agreement.

8. Monitor loan repayment:

Monitor the loan repayment to ensure that the Employee is adhering to the repayment terms.

Employee Loan Agreement Format

Employee Loan Agreement (the “Agreement”) is made on___ day of ______, 20___ by and among_______________ (the “Company”) and ______________ (“Employee”).

WHEREAS, Employee is the ______________________;

WHEREAS, Employee has asked for a loan from the Company for personal reasons;

NOW, THEREFORE, in respect of the reciprocal promises and covenants herein, the Company and Employee approve as follows: