Companies , these days, increasingly position the loan benefits that they offer to their employees , as a major financial benefit to the employee. But, taking a loan from the employer is something I strongly recommend people to avoid . Here’s why I believe you should not opt for a loan from your employer:
1. Any loan from your employer ties you to your job. You can’t come out until the loan amount has been cleared in full. You might argue that you can always ask your new employer to bear the loan. But where does that take you? From one chain to the next? Plus, I’m not sure if any employer today would be willing to bear existing loans.
It’s psychologically debilitating to see your take home salary cut by the EMI (Equated Monthly Installment) amount on the loan even before it’s credited into your salary account.
2.There’s a hidden cost. Though you do not actually pay any direct interest on the loan amount, the notional interest surfaces as a perquisite in your income tax calculations and adds directly to your taxable income. I didn’t know this fact until I saw my income tax calculations; it was already too late.
3. People take loans that they dont really "need" . I have seen people taking loans from the employers just to take the benefit of saving on the interest differential that is there between the employer's rate and the prevailing market rate. This leads to people taking on credit liability when they do not really need the money. Most of the time credit is not used in the best possible manner leading to drain on savings and finacial stress.
With some fanatic fiscal steps, those already in the trap can manage to come out of this situation sooner than they think.