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The employer loan as a low-interest mortgage

The employer loan is a mostly dedicated loan that you don’t get from a bank, but from your employer. The loan, also referred to as personal loan, is granted by the company in order to show the employee the appreciation of the company and to bind him to himself.

The interest accruing on the employer loan is based on the standard interest rate, which in turn depends on the effective interest rate that the Agree bank publishes at regular intervals.

Loan amount in the event of an IPO to add shares of the company in the form of shares.

Loan amount in the event of an IPO to add shares of the company in the form of shares.

The loan agreement gives both parties the greatest possible legal certainty and clarifies open questions in advance.

In addition to the usual information about the parties and the amount of the loan, the components of the contract also include the following points:

  • Amount of interest
  • Payment by installments (amount, frequency)
  • Repayment arrangements upon termination of employment
  • Information on collateral (seizure, assignment)

With regard to tax law, an employer loan contract is to be treated like any conventional loan. This means that taxes can be incurred if the conditions for the loan are very favorable.

  • If the interest rate granted falls below the reference rate set by the Agree bank, the difference between the two applies as a taxable, monetary benefit for the borrower.

The details of the monetary benefit are regulated in Section 8 Paragraph 2 Clause 9 of the Income Tax Act (Income Tax Act). The amount of the tax exemption limit is 44 USD. As soon as this limit is exceeded, the excess amount is taxable.

Grant term and repayment. This is because the company can use the employee’s income as security.

As a rule, the installment to be paid is deducted directly from the borrower’s salary. It can be difficult for the company if the employee quits and cannot find a new job or if he falls ill over a very long period of time. These situations can lead to insolvency.

Debt for a mortgage.

Debt for a mortgage.

The applicant’s negotiating skills are probably very important here. Usually, the length of service and the amount of the wages play an important role in determining the loan amount.


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