The salary loan is a particular type of personal loan intended for employees and withdrawals.
It is a loan that you can request for personal needs concerning private and family life such as, for example, the purchase of a car, the TV, a training course or for the need for cash.
This type of financing requires an insurance obligation to guarantee the payment of the residual debt in case of loss of job or death of the owner. Those who request the salary loan have all the protections and rights provided by the credit to consumers whatever the amount of the loan.
How does the salary loan and the pension works?
Whether you are a public or private worker or a pensioner, the law allows you to repay the loan amount by giving up to a fifth of the pension or salary to the lender. In practice, the employer or social security institution will keep the installment from your salary or pension and pay it to the lender.
The salary loan is a form of credit not finalized. Non-finalized credit means that you are not required to specify how you will spend the money.
Who can apply for the salary loan and the pension?
The requirements for accessing this form of personal credit are:
- permanent contract
- aged between 18 and 63
- insurability of the company if you are employed by a private company.
- no more than 90 years of age when the loan expires (companies often limit to 85 years);
- pension with a minimum amount (that established annually by law) net of the transferable portion.
How much can be asked on loan in salary loan and what is the maximum repayment term?
The maximum loan amount is established on the basis of the salary or pension amount. The repayment duration ranges from a minimum of 2 years to a maximum of 10 years.
The financing is renewable, but under certain conditions:
- if a minimum time limit of 2/5 of the duration of the initial loan has elapsed, or if you have repaid at least 40% of the number of installments envisaged;
- if you want to renew an operation with a duration of 5 years or less with a 10 year one.
If you are a pensioner, you can request the salary loan, because only one deduction can be made on the pension, the value of which cannot exceed one fifth of the monthly sum received.
If you are an employee you can ask for a higher loan because you can assign an additional fifth of your salary, that is, you can make two deductions on the salary. In this case, in addition to the salary loan, you will also have to enter into the “payment delegation” contract with the lender.
The employer is obliged to adhere to the salary loan while he is free to join the payment delegation or not.
What are the costs of the salary loan and the pension?
The cost of this form of financing can be more expensive than others, because it also includes the cost of compulsory insurance.
The cost includes: interest, preliminary costs, installment collection costs, communication costs, taxes and compulsory insurance coverage.
It also depends on:
- from the sum paid,
- the trend in interest rates,
- from the expenses for the payment of the installments,
- from insurance costs.
Some commissions and fees are fixed and do not depend on the sum requested: they will affect more if the amount requested is low.
To evaluate the overall cost of financing, it is important to pay attention to the APR (Annual Global Effective Rate).
How to withdraw from the contract of salary loan?
When a loan is “consumer credit”, the law provides for particular consumer protections and rights with respect to other types of financing.
You can withdraw from the contract within 14 days from the date of signature by sending a communication to the lender in the manner indicated. To withdraw, you must not give any reason.
If in the meantime you have received the loan, even if only in part, you must return the sum received within 30 days from the communication of the withdrawal, paying the interest accrued up to the repayment. Withdrawing from the credit agreement also means withdrawing from the ancillary services provided by the lender or by third parties, unless third parties demonstrate that they independently provide these services, regardless of the agreement with the lender.
The lender may also withdraw, but must notify you with at least two months’ notice. You can repay the amount due in whole or in part at any time in advance. In this case you are entitled to a reduction in the total cost of credit, equal to the amount of interest and costs – which you actually advanced – due to the residual life of the contract, for example those of the insurance.
What are the risks of the salary loan?
The salary loan is an important economic commitment to be sustained over time, both for a person and for a family. Repaying the borrowed amounts over time could be a heavy undertaking. It is good to keep in mind that already having financing could make you unworthy of earning further credit. Consider that the loans received are recorded in various credit information systems, including – depending on the amount – the one managed by the Bank and called the Central Credit Register.
What do you need to know before applying for a salary loan or pension?
Consider how giving up a share of your salary or pension could affect your daily life and your future commitments. Keep in mind that during the course of the financing unexpected events may occur, such as medical expenses, for the home, for the children, which imply new releases.
Being a form of credit not finalized, be careful to use the financing for really important expenses and not for the management of daily expenses.
Compare the offers on the market by reading their characteristics on the information sheets. To orient yourself you can also consult search engines that compare offers.
To compare offers also use the APR (Annual Global Effective Rate), which all intermediaries must publish.
Consider that it is mandatory to have insurance that protects against negative events such as death or loss of job. Evaluate how the cost of insurance affects the cost of financing. More generally, make sure that you understand all the cost components, even those related to any early repayment of the loan.
If something is not clear to you, always ask for clarification because it is your right. Verify that the lender is authorized to carry out financing activities (the details of registration in the bank Lists help you, which you can find on the lender’s letterhead which you can easily check on the bank website).
Check that the credit intermediary (financial agents and credit brokers) used by the lender is registered in the lists maintained by the Body of agents and brokers (also in this case the registration details are in the letterhead of the intermediary and verifiable on the site) .