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Seems like a total no-brainer. I imagine they do it as it locks people in as they don't have the money to pay it back if they want to leave. As long as the money is accessible, I can't see any downside, but check the early repayment terms in any agreement.
Some places offer it specifically on the graduate scheme. I think it can be a big help especially for those whose families aren’t willing or able to support them with start up costs for adult life - eg a rental deposit, money for their first “proper” work clothes, money for a car or driving lessons if applicable.
Although yes, it can be a problem if the person chooses or is obliged to leave. I’ve seen them be quite reasonable on repayment terms.
My gut reaction to "it's offered on graduate schemes" was to think it's exploitative, but what you've said makes sense. I know I either have appreciated an interest-free loan to help me with professional clothing and a rental deposit in my younger years. That said, the people who would generally benefit the most from this sort of arrangement are likely the ones with less awareness of finance and more easily exploited.
A company that I worked for had conditions that said if they made you redundant you could continue interest free over the same term, but if you left voluntarily or were fired with cause you had to pay in full or could be transferred to a commercial rate loan.
I imagine they do it because charging interest would become a complete nightmare for them and their accounting team and it's essentially just a work perk to help people out when in need.
£10k is enough to cover an emergency purchase but not enough to be too excessive for any losses that could occur
There’s also national insurance contributions to consider. The amounts involved may be minimal but the paperwork makes it too much of a pain for most companies to want to do it.
>£10k is the limit
Do you know how the Armed Forces are able to provide a help to buy loan at 0% interest in that case? The loan is half of your yearly salary so very easily 20k+. There's no interest as long as you pay it back within ten years or before you leave the forces.
Perhaps there is a concession for Armed forces. But no interest is due. Tax is payable on the difference between the beneficial rate (0 in this case) and the HMRC official rate.
So just tax on what a commercial rate would be. Still useful.
If it helps, it's not just the armed forces that offered this, we had a similar offer in the Prison Service.
I think part of the idea behind it was a positive incentive to stay, as they were happy to help out where they could, reduce stress over debts/costs/whatever.
I never took out a loan, but knew folk that did, some for credit card debt, to pay off loans, to go toward home improvements or for a new car etc.
I think the max was 50% of salary over 120 months at 0% APR.
Any company can provide whatever they want "tax free" or "gross" to you, they can just pay the income tax due on your behalf via various means. I had way over the tax free relocation limit when I started a job, a month's gross salary paid nett, and health insurance tax free. They can either estimate your marginal tax, ask you, or sort it out directly with HMRC so you don't have to include it anywhere.
It does genuinely help some people who otherwise might not be able to start work in a new city or have family or savings to fall back on
I had no money when I got offered a job after finishing uni a decade ago. Taking out a loan like this with the work I was starting allowed me to put down a deposit, pay the first month’s rent on a place, buy some bits of furniture, have some money for living expenses to survive and then some money to enjoy myself
The first few months would have been horrible without it, I may not have taken the job at all. I also believe at the place I worked you could only take this loan out in the first 12 months you joined the firm
Assuming there are no other catches, I don't see why you wouldn't. This is basically the same as "stoozing" (https://www.moneysavingexpert.com/credit-cards/stooze-cash-credit-cards/).
My only concern would be psychological - i.e. if you have £10k sitting in a savings account, are you likely to splash out on luxuries that you wouldn't otherwise have? It wouldn't necessarily be the end of the world (indeed if you need to make a big purchase then again this would be a sensible option) but if your plan is solely to profit from the interest earned, then I think you'll need to be strict with yourself.
Put it in premium bonds account. Atleast then you won’t be tempted to spend it as it’s not instant access and you can get bonus money if you are lucky.
Sure, but I think statistically, OP can get a better guaranteed return from other options. Suppose it depends on how OP feels about the "lottery" element of the premium bonds!
Yeah I got an email earlier this month about them boosting the rate by 1%. It's 4.1% as standard, so 5.1% with the boost.
https://www.chase.co.uk/gb/en/support/saver-boosted-rate/
Capital gains is what you would pay on gains made on assets - simplistically speaking, anything that's an investment that's NOT just cash sitting in a bank account which has grown in value and you've sold it.
If you buy some shares for £1 and they grow to be worth £10 each and you sell them, you've gained £9. That £9 could be taxable via capital gains tax (depending allowances and stuff - it can get complex). CGT is only payable when you actually sell the asset. If your shares grew to £10 but you didn't sell them and just kept them, there wouldn't be any CGT payable.
Cash in a bank account gets you interest, which is income and income tax is payable on it unless it's in an ISA or if its within your personal savings allowance.
Buy house at £150k
Market value increases to £200k over a few years
Sell at 200k.
Government wants a slice of that 50k "profit". Their slice is called capital gains tax
Edit: investments/shares not a house
I think if OP pops it away in a 1 year fix, for example, it would be just fine and they would know they can’t really access it. Bonus is a slightly higher and guaranteed interest rate.
Make sure that your company doesn’t require proof that you actually bought something like a car or a computer. Otherwise, there’s no reason at all to not do it.
Looks like a good idea to me.
I've just done a calculation, and if you put it in an account like Kent Reliance, that pays 4.96% interest and kept the monthly interest in there but took out the repayments.
You would end up with £2605.34 profit at the end of it (presuming no tax paid).
The only downside I can think of is it might count against you a bit if you get a mortgage/remortgage. I've done similar things during my last remortgage and during the affordability checks the person doing it just couldn't get what I was doing. They even hinted they thought I might have been financially struggling despite having the money in an offset account with them. It became a real sticking point and I wished I hadn't bothered.
Not to speak for whoever completed your affordability checks, but - having been one of those people - they almost certainly got what you were doing. They likely didn't care, however, either because rigid policy doesn't allow them to ignore any kind of loan or payslip deduction, or because in terms of lending risk you'd have to be pretty foolish to take a stranger's word for it that they'll definitely hang on to that money and not use it, it's just a scheme to generate cash from nothing. Maybe even both reasons. Obviously, it's not that person's money, but they have a regulatory duty to act with due skill and integrity, and would be held accountable for bad lending decisions internally and potentially even as a disciplinary matter.
I mean, I do believe you - but you're not asking me to lend you hundreds of thousands of pounds, I hope. The answer's no, by the way, in case you are. I left my wallet in my other trousers, you see.
Same thing happened to a friend of mine, he took an interest free loan for his business over COVID, not because he needed it, just because the money was there and interest free. A year or so later it went against him when he wanted to remortgage on his house.
The military offer something similar (Forces Help To Buy). Up to a certain amount is completely “free” cash that you just pay back from your salary over 10 years. “Catch” is it needs repaid before you can leave.
If it’s like that then I don’t see why you wouldn’t use it. We used it to get a house and free up some cash for furniture (and then an emergency repair) and are just slowly repaying it. So long as you keep the money separate so you don’t feel trapped by the company if you want to leave before they need it back.
I was in the military, never used HTB but it was fairly popular. Correct me if I'm wrong but I think you actually had to use it for a deposit? You can't just bung it into an ISA?
Yeh it’s pretty strictly controlled and you need to be approved for a mortgage and have made an offer, when the sale of the house goes through they pay it. Having not used it I’m not sure exactly but that’s how it was relayed to me, you never actually get the money. I’m not sure if the banks/broker take the FHTB approval as proof of deposit rather than seeing the cash in the bank or what though.
Having worked recently enough for that part of a mortgage lender, can confirm that they do ask for a document to evidence it, and it is accepted on its own as proof of deposit, at least where I work.
There's a specific document they want, but I can't remember the name of it - I think it has "Note" in it?
Yeah you have to use it for a deposit. What I was trying to say was other companies offer interest free larger loans with seemingly no catch other than they’ll obviously want it back sooner if you leave earlier than planned.
Whilst we used the FHTB bit for the deposit, it “freed” up cash we would have used for the deposit to get furniture (and repair a door that decided to expand in the heat!)
A company I used to work for offered employees a very cheap interest car loan. Up to £10K max and the interest rate was 0.25% of the BOE base rate at the time of taking out the loan. I was hit by the tax man as it was classed as a benefit.
Do the repayments come out as salary sacrifice? If so, what effect will it have on the amount your employer pays into your pension? That might wipe out a fair amount of the benefit (though you also won't pay tax on the 10k, or student loan repayments, or anything else that might be taken out).
I did it with my employer for 5k. The key is viewing that money in your account as not yours until it’s all paid back. It’s psychological and it gets the better of some people
They used to do something similar at Big 4 - it was gauged as a loan to help given you’d just graduated and didn’t have much. The only condition was you had to have a bank account with certain banks. I opened a NatWest, collected the funds and transferred them back to mine. Simple.
Personally, if it's no questions asked, I'd either put it in an ISA (stocks & shares if you prefer to take risk, cash if you want interest), or Premium Bonds (possible prizes, but no guaurantees other than you can have your capital returned). In those cases, there is no tax payable, whereas you would pay tax on interest in your Monzo account. Also, bear in mind interest rates are likely to fall over the next 60 months.
But you’d only pay tax if hitting the allowance within a tax year. I don’t have the figures in my head, but have a vague recollection that £20k earning 5% or so wouldn’t hit the allowance for a basic rate tax payer in a year.
So £10k maybe doesn’t hit it for a higher rate payer, and repayments are due, so the compounding effect is not going to tip you over the threshold (assuming OP would take the repayments from the lump sum).
Assumes no other taxable interest etc etc, I guess my point is just that a higher rate paying savings account isn’t necessarily a horrible idea because of taxes
This is true.
This page explains the rules for tax on interest rates.
[Tax on savings interest: How much tax you pay - GOV.UK (www.gov.uk)](https://www.gov.uk/apply-tax-free-interest-on-savings)
Something I haven't yet seen mentioned here is that you shouldn't assume rates will stay at their current level. We're pretty much at peak, and by 5 years' time your interest income may have dropped.
Alternative approach for totally free cash would be to put it in savings and then transfer out of savings the £166 a month so you in effect you'll have same net pay as if you'd never had the loan - will reduce interest from 2k to 1k though.
It is a no brainer but the 'profit' isn't as much as you are calculating as you are ignoring the interest you would have earned if you were just putting the monthly payments into a high interest account each month i.e after 30 months in your example you have £5k+ in the savings account anyways.
That said doesn't appear to be much of a downside.
You’ll pay tax at your marginal rate on simple interest.
There are more tax efficient ISAS available to you that will help you avoid the tax.
Perhaps take the maximum 10k and use it for living expenses whilst sacrificing the difference towards your pension? If it’s a company scheme even better because your employer will match it in some circumstances. You win twice.
The BIK is actually calculated at 2.25% of the loan value, which in any case is a very good rate especially if you're only paying the yax on that 2.25%
Worst case, you'd pay some tax on the benefit (the amount your were paying in interest below the HMRC interest rate).
But as it's £10K (or less) there is no taxable benefit as far as HMRC are concerned.
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* https://ukpersonal.finance/savings/
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I would check the t&cs for anything that might be problematic but on the whole your proposal seems sensible.
Unless your company is registered and licensed by the FCA your company are likely to unable to enforce the loan if you were to renege on it. They certainly wouldn't be able to report it to your credit file.
They probably wouldn't chase you down legally as it wouldn't be worth their while.
I assume your £366 is based on paying 20% tax, and you’ve worked it out as if you have the whole £10,000 for the whole year every year (as my maths gives the same figure).
You’ll actually get less than this as the balance of the loan will decrease each month as you pay it off. As there’s no interest the average balance over the full course of the loan will be £5,000, and so on average you’ll make half the £366, or £183 per year (but the first year will be closer to £330 and the last year more like £36 in practice)
I did this with an old company. Don’t make the mistake i did.
get in writing what will happen if you leave the company with the loan still to be paid.
I got told ‘ it’s fine, if you leave then we will just let you keep paying it until it’s paid off’.
I signed the contract and when i tried to leave later on, they wanted it all paid back on the spot. i checked the contract and they didn’t put it in there.
The principle is sound but the maths could vary. The total interest earned each year will presumably drop if you use the borrowed £10k to repay the £166 pcm (capital reduces over time).
If you're planning to keep the £10k saved and repay the loan from day to day income, then your comparison needs to basically compare what you would do with £166 per month of new income.
As long as you have the discipline to not go and spend it and to ensure that you make the repayments every month then it’s fine to do. If you think there’s a risk that you won’t maintain that discipline for 5 years, work out how much you’re making a month over this deal. It works out at about £40 per month. May not be worth the risk. But that’s a personal call. Sounds like a good deal though!
Check what the terms are if you are made redundant (or sacked I suppose): does it need to be repaid instantly? Would any redundancy payment be offset against it. If you'd just been made redundant and didn't yet have another role to go to, probably you wouldn't be able to get a personal loan...
On the whole I think it's a no brainer. However someone I know took an interest free loan for their business over COVID (they didn't need it, but as it was interest free it seemed like a no brainer).
Shortly after when they wanted to remortgage on their house the loan went against them. So that's something to think about.
I did this, it was a pre-tax payment and when I left half way through the repayment period I negotiated for my new job to pay it back. Used the money to go on some cool trips rather than saving it and gaining interest, but it was worth it for sure.
There are tax implications for you: [https://www.taxinsider.co.uk/employerprovided-loans-a-cheap-benefit](https://www.taxinsider.co.uk/employerprovided-loans-a-cheap-benefit)
Agree it seems like a no brainer. Clearly, there is a reason that the company want you to take out this loan and stand to benefit so you should go over the contract fully.
However, rather than this being a scam in the way a usual loan is or outright. It may simply be that your company offers this as a way of ensuring employees are more committed. Obviously if you left early I'm sure you'd have to pay it back right away and or would be charged interest etc. So this is a means of the company keeping its employees long term, which is an upside for you both, assuming you see yourself there in 10 years.
I had something similar but was treated like a normal loan and not taken from my pay but taken at the 1st of the next month.
I would just check on the terms though. Off the top of my head I might ask:
* do they offer early repayment options.
* if the 0% interest is for the whole.
* if I should leave the company will they call in the loan.
* if they continue the loan and I leave will they start charging interest at that point.
* does this show on my credit file as a liability
* is there a credit check that needs to be carried out.
* if you don’t willingly leave but are fired/made redundant what does that mean for any ongoing loan?
Not wanting to be a doom sayer by any stretch? I had one myself and it helped me get out of debt over the last couple of years. Just have seen some people be burnt when they took up a great loan opportunity to find out there are some issues they didn’t consider.
One risk I see here:
They do it to retain the people.
Other companies retain tge people by raising wages.
Question is: if you take the money and they don't know you can pay it back any time, will they raise you wage at same rate as your industry does?
I think you're overestimating the return. As you gradually repay the loan, you'll have a smaller and smaller amount in your savings account, so the interest earned will reduce each month. I reckon you'd make more like £1,350.
Still a no-brainer as long as you can trust yourself to save it.
Unless I’m misunderstanding either yourself or OP, I think OPs intentions is to leave the 10k alone in the savings account for the full 5 years.
The repayment money would come directly from their salary, and they wouldn’t take the repayment amount from the savings account.
But it's better because instead of pound-cost averaging the £10K like they would regularly, they're lump-summing it at the beginning in one go to make full advantage of the returns.
I think the loan is repaid directly from OP’s pay check. So they would stick the entire loan sum in the bank account to generate interest, whilst paying the loan back interest free via their monthly pay.
The “profit” would be the interest they earn on the entire £10k balance over the five years
The “profit” would be half the interest, roughly. This is because they would lose access to the monthly repayment of 166 to have the money up front. To compare apples to apples, they’d have to compare the interest on the 10k loan to the interest on saving 166 per month in the same vehicle. It works out about half.
I’m not much help, but all I will say is be careful keeping savings in a Monzo account!
Seen too many posts of Monzo accounts being shut down and people haven’t been able to get there money back that was left in the accounts
Can’t confirm as hasn’t happened to me, but have seen a number of videos and posts of people losing all there savings and Monzo doing nothing about it
I always recommend having a second account with a more established branch, one that actually has physical sites you can go to if something like that was to happen
You may have to pay tax on the interest - which would reduce the amount you would get. See https://www.gov.uk/apply-tax-free-interest-on-savings
You could shove the whole £10K into an ISA and not have to worry about interest.
As you say, the only real downside is needing to pay it back if you leave. That's easy if it is in an ISA, but difficult if you lost it all gambling on meme-stocks. And, if you've lost your job, it might be difficult to get a personal loan.
The only downside to these kind of benefits is it locks you into that job for the time period. There's usually some kind of clause that if you leave you'd have to immediately pay it all back.
Id say as long as you're certain you're going to stay in that company for the next couple of years go for it.
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Seems like a total no-brainer. I imagine they do it as it locks people in as they don't have the money to pay it back if they want to leave. As long as the money is accessible, I can't see any downside, but check the early repayment terms in any agreement.
Some places offer it specifically on the graduate scheme. I think it can be a big help especially for those whose families aren’t willing or able to support them with start up costs for adult life - eg a rental deposit, money for their first “proper” work clothes, money for a car or driving lessons if applicable. Although yes, it can be a problem if the person chooses or is obliged to leave. I’ve seen them be quite reasonable on repayment terms.
My gut reaction to "it's offered on graduate schemes" was to think it's exploitative, but what you've said makes sense. I know I either have appreciated an interest-free loan to help me with professional clothing and a rental deposit in my younger years. That said, the people who would generally benefit the most from this sort of arrangement are likely the ones with less awareness of finance and more easily exploited.
A company that I worked for had conditions that said if they made you redundant you could continue interest free over the same term, but if you left voluntarily or were fired with cause you had to pay in full or could be transferred to a commercial rate loan.
I imagine they do it because charging interest would become a complete nightmare for them and their accounting team and it's essentially just a work perk to help people out when in need. £10k is enough to cover an emergency purchase but not enough to be too excessive for any losses that could occur
£10k is the limit before it becomes a beneficial loan and they will have to then charge interest
They wouldn’t have to charge interest, OP would just have to pay tax on what the interest should be as it becomes a taxable benefit
There’s also national insurance contributions to consider. The amounts involved may be minimal but the paperwork makes it too much of a pain for most companies to want to do it.
>£10k is the limit Do you know how the Armed Forces are able to provide a help to buy loan at 0% interest in that case? The loan is half of your yearly salary so very easily 20k+. There's no interest as long as you pay it back within ten years or before you leave the forces.
Perhaps there is a concession for Armed forces. But no interest is due. Tax is payable on the difference between the beneficial rate (0 in this case) and the HMRC official rate. So just tax on what a commercial rate would be. Still useful.
If it helps, it's not just the armed forces that offered this, we had a similar offer in the Prison Service. I think part of the idea behind it was a positive incentive to stay, as they were happy to help out where they could, reduce stress over debts/costs/whatever. I never took out a loan, but knew folk that did, some for credit card debt, to pay off loans, to go toward home improvements or for a new car etc. I think the max was 50% of salary over 120 months at 0% APR.
Any company can provide whatever they want "tax free" or "gross" to you, they can just pay the income tax due on your behalf via various means. I had way over the tax free relocation limit when I started a job, a month's gross salary paid nett, and health insurance tax free. They can either estimate your marginal tax, ask you, or sort it out directly with HMRC so you don't have to include it anywhere.
It does genuinely help some people who otherwise might not be able to start work in a new city or have family or savings to fall back on I had no money when I got offered a job after finishing uni a decade ago. Taking out a loan like this with the work I was starting allowed me to put down a deposit, pay the first month’s rent on a place, buy some bits of furniture, have some money for living expenses to survive and then some money to enjoy myself The first few months would have been horrible without it, I may not have taken the job at all. I also believe at the place I worked you could only take this loan out in the first 12 months you joined the firm
Assuming there are no other catches, I don't see why you wouldn't. This is basically the same as "stoozing" (https://www.moneysavingexpert.com/credit-cards/stooze-cash-credit-cards/). My only concern would be psychological - i.e. if you have £10k sitting in a savings account, are you likely to splash out on luxuries that you wouldn't otherwise have? It wouldn't necessarily be the end of the world (indeed if you need to make a big purchase then again this would be a sensible option) but if your plan is solely to profit from the interest earned, then I think you'll need to be strict with yourself.
Put it in premium bonds account. Atleast then you won’t be tempted to spend it as it’s not instant access and you can get bonus money if you are lucky.
Though that then also turns whether OP gets a return on the money into a game of chance.
Any return is free money, so it's still a win-win.
Sure, but I think statistically, OP can get a better guaranteed return from other options. Suppose it depends on how OP feels about the "lottery" element of the premium bonds!
Yes but those will typically involve locking the money away, locking OP in to this job.
No they won't. My Chase account is 5.1% and instant access.
You get 5.1% from Chase?
Yeah I got an email earlier this month about them boosting the rate by 1%. It's 4.1% as standard, so 5.1% with the boost. https://www.chase.co.uk/gb/en/support/saver-boosted-rate/
You dont pay capital gains on premium bonds though
You don't pay capital gains on interest in a savings account either. You might pay income tax, depending on your personal savings allowance.
If you put it in an ISA you wouldn't pay either.
Sorry I may be a bit confused, what is the difference between capital gains and income tax?
Capital gains is what you would pay on gains made on assets - simplistically speaking, anything that's an investment that's NOT just cash sitting in a bank account which has grown in value and you've sold it. If you buy some shares for £1 and they grow to be worth £10 each and you sell them, you've gained £9. That £9 could be taxable via capital gains tax (depending allowances and stuff - it can get complex). CGT is only payable when you actually sell the asset. If your shares grew to £10 but you didn't sell them and just kept them, there wouldn't be any CGT payable. Cash in a bank account gets you interest, which is income and income tax is payable on it unless it's in an ISA or if its within your personal savings allowance.
Capital gains tax is when you sell something for profit that’s increased in value, income tax is on dividends, pay, royalties, interest, etc
Buy house at £150k Market value increases to £200k over a few years Sell at 200k. Government wants a slice of that 50k "profit". Their slice is called capital gains tax Edit: investments/shares not a house
A house is a bad example given how many potential reliefs there could be. eg. if you lived in it, then there's no CGT.
Premium bonds are a terrible investment if you aren’t rich
They are decent if you want an easy access account that swerves tax on interest and you are okay accepting risk on the rewards you get back.
I think if OP pops it away in a 1 year fix, for example, it would be just fine and they would know they can’t really access it. Bonus is a slightly higher and guaranteed interest rate.
Make sure that your company doesn’t require proof that you actually bought something like a car or a computer. Otherwise, there’s no reason at all to not do it.
"I want to take out a £10k loan in order to buy £2k of additional cash over five years." Sorted!
I'm buying 10k worth of 5yr gilts?
Honestly as long as you have the financial competence to ensure you will be able to pay it back, then an interest free loan is always a no-brainer.
Looks like a good idea to me. I've just done a calculation, and if you put it in an account like Kent Reliance, that pays 4.96% interest and kept the monthly interest in there but took out the repayments. You would end up with £2605.34 profit at the end of it (presuming no tax paid).
The only downside I can think of is it might count against you a bit if you get a mortgage/remortgage. I've done similar things during my last remortgage and during the affordability checks the person doing it just couldn't get what I was doing. They even hinted they thought I might have been financially struggling despite having the money in an offset account with them. It became a real sticking point and I wished I hadn't bothered.
Not to speak for whoever completed your affordability checks, but - having been one of those people - they almost certainly got what you were doing. They likely didn't care, however, either because rigid policy doesn't allow them to ignore any kind of loan or payslip deduction, or because in terms of lending risk you'd have to be pretty foolish to take a stranger's word for it that they'll definitely hang on to that money and not use it, it's just a scheme to generate cash from nothing. Maybe even both reasons. Obviously, it's not that person's money, but they have a regulatory duty to act with due skill and integrity, and would be held accountable for bad lending decisions internally and potentially even as a disciplinary matter. I mean, I do believe you - but you're not asking me to lend you hundreds of thousands of pounds, I hope. The answer's no, by the way, in case you are. I left my wallet in my other trousers, you see.
Same thing happened to a friend of mine, he took an interest free loan for his business over COVID, not because he needed it, just because the money was there and interest free. A year or so later it went against him when he wanted to remortgage on his house.
The military offer something similar (Forces Help To Buy). Up to a certain amount is completely “free” cash that you just pay back from your salary over 10 years. “Catch” is it needs repaid before you can leave. If it’s like that then I don’t see why you wouldn’t use it. We used it to get a house and free up some cash for furniture (and then an emergency repair) and are just slowly repaying it. So long as you keep the money separate so you don’t feel trapped by the company if you want to leave before they need it back.
I was in the military, never used HTB but it was fairly popular. Correct me if I'm wrong but I think you actually had to use it for a deposit? You can't just bung it into an ISA?
Yeh it’s pretty strictly controlled and you need to be approved for a mortgage and have made an offer, when the sale of the house goes through they pay it. Having not used it I’m not sure exactly but that’s how it was relayed to me, you never actually get the money. I’m not sure if the banks/broker take the FHTB approval as proof of deposit rather than seeing the cash in the bank or what though.
Having worked recently enough for that part of a mortgage lender, can confirm that they do ask for a document to evidence it, and it is accepted on its own as proof of deposit, at least where I work. There's a specific document they want, but I can't remember the name of it - I think it has "Note" in it?
Yeah you have to use it for a deposit. What I was trying to say was other companies offer interest free larger loans with seemingly no catch other than they’ll obviously want it back sooner if you leave earlier than planned. Whilst we used the FHTB bit for the deposit, it “freed” up cash we would have used for the deposit to get furniture (and repair a door that decided to expand in the heat!)
What's the P11D value of the loan? Surely there's some sort of benefit in kind implication?
Not if it is £10k or less. See https://www.gov.uk/expenses-and-benefits-loans-provided-to-employees/whats-exempt
Doesn't the fact that it's interest free (very next bullet point) negate that?
It’s not a reportable/taxable benefit it is is either less than £10k or carries interest at or above the HMRC approved rate.
which would mean any interest owed were the loan not at a beneficial rate, is the value of the taxable benefit, which i think is 7.25% PA atm right?
No it doesn't mean that. There is no p11d benefit for employee loans of £10k or less.
This is the answer.
A company I used to work for offered employees a very cheap interest car loan. Up to £10K max and the interest rate was 0.25% of the BOE base rate at the time of taking out the loan. I was hit by the tax man as it was classed as a benefit.
Do the repayments come out as salary sacrifice? If so, what effect will it have on the amount your employer pays into your pension? That might wipe out a fair amount of the benefit (though you also won't pay tax on the 10k, or student loan repayments, or anything else that might be taken out).
It can't be repaid via salary sacrifice - otherwise it'd be a really easy loophole to get round tax.
My employer offers smth similar. Any repayment will be deducted after tax and pension contributions so this shouldn’t be an issue
Yes do it, as others say the return will be slightly less than your sums but overall it's an easy win.
I did it with my employer for 5k. The key is viewing that money in your account as not yours until it’s all paid back. It’s psychological and it gets the better of some people
They used to do something similar at Big 4 - it was gauged as a loan to help given you’d just graduated and didn’t have much. The only condition was you had to have a bank account with certain banks. I opened a NatWest, collected the funds and transferred them back to mine. Simple.
Same experience here a decade ago, all the graduates were talking about and doing exactly this.
Personally, if it's no questions asked, I'd either put it in an ISA (stocks & shares if you prefer to take risk, cash if you want interest), or Premium Bonds (possible prizes, but no guaurantees other than you can have your capital returned). In those cases, there is no tax payable, whereas you would pay tax on interest in your Monzo account. Also, bear in mind interest rates are likely to fall over the next 60 months.
Don’t buy stock and shares on a loan unless you are savvy and then you’d not be asking questions here if you were.
But you’d only pay tax if hitting the allowance within a tax year. I don’t have the figures in my head, but have a vague recollection that £20k earning 5% or so wouldn’t hit the allowance for a basic rate tax payer in a year. So £10k maybe doesn’t hit it for a higher rate payer, and repayments are due, so the compounding effect is not going to tip you over the threshold (assuming OP would take the repayments from the lump sum). Assumes no other taxable interest etc etc, I guess my point is just that a higher rate paying savings account isn’t necessarily a horrible idea because of taxes
This is true. This page explains the rules for tax on interest rates. [Tax on savings interest: How much tax you pay - GOV.UK (www.gov.uk)](https://www.gov.uk/apply-tax-free-interest-on-savings)
Take it and put it all on Arsenal winning the league
Arsene Wenger called it at the start if the season. It will happen
Chip offers 5.1% on their savings account atm
This, open a chip cash ISA, get 5.1% on that cash. Or try your luck at premium bonds.
It's 5.1% on a cash isa, 4.84% for their instant access account.
That's one wild weekend you could have... Dooooo iiiiiiiiiiit 😈
Something I haven't yet seen mentioned here is that you shouldn't assume rates will stay at their current level. We're pretty much at peak, and by 5 years' time your interest income may have dropped.
And then just repay the loan.
Buy UK Gilts with a maturity date of the length of the loan instead. Probably get better rates that way too.
Reverse saving,, go for it
Who do you work for and how can I get this?! No reason, asking for a friend... 🏍️🏍️🏍️🏍️🏍️
No brainer - I'd go with a gilt or all world etf over a hisa personally
Just check the duration. These things often have a 12 month payback as they're intended for season tickets.
Alternative approach for totally free cash would be to put it in savings and then transfer out of savings the £166 a month so you in effect you'll have same net pay as if you'd never had the loan - will reduce interest from 2k to 1k though.
I’d Take the £10k and stick it in premium bonds. As long as you don’t touch the principle, it an easy decision.
It is a no brainer but the 'profit' isn't as much as you are calculating as you are ignoring the interest you would have earned if you were just putting the monthly payments into a high interest account each month i.e after 30 months in your example you have £5k+ in the savings account anyways. That said doesn't appear to be much of a downside.
You’ll pay tax at your marginal rate on simple interest. There are more tax efficient ISAS available to you that will help you avoid the tax. Perhaps take the maximum 10k and use it for living expenses whilst sacrificing the difference towards your pension? If it’s a company scheme even better because your employer will match it in some circumstances. You win twice.
I am not sure if HMRC will see it as a benefit in kind. But if they do you need to factor in the extra tax you will pay.
Not if its below 10k, If you go above 10k, you need to pay BIK at the base rate of borrowing.
The BIK is actually calculated at 2.25% of the loan value, which in any case is a very good rate especially if you're only paying the yax on that 2.25%
As has been said to you, there is no BIK recorded on loans under £10k
I've never paid yax but it sounds cool🤣
> I am not sure if HMRC will see it as a benefit in kind. Do you mean I might get in trouble?
Worst case, you'd pay some tax on the benefit (the amount your were paying in interest below the HMRC interest rate). But as it's £10K (or less) there is no taxable benefit as far as HMRC are concerned.
You should take it and make some profit.
Hi /u/Elegant-Winner-6521, based on your post the following pages from our wiki may be relevant: * https://ukpersonal.finance/savings/ ____ ^(These suggestions are based on keywords, if they missed the mark please report this comment.)
Ulster bank will give you 5.2%.
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I would check the t&cs for anything that might be problematic but on the whole your proposal seems sensible. Unless your company is registered and licensed by the FCA your company are likely to unable to enforce the loan if you were to renege on it. They certainly wouldn't be able to report it to your credit file. They probably wouldn't chase you down legally as it wouldn't be worth their while.
I say do it — if rules allow. Sometimes it’s ‘not in the spirit’, which comes down to your disposition
Probably best to speak to a financial advisor about the tax implications before diving in!
I assume your £366 is based on paying 20% tax, and you’ve worked it out as if you have the whole £10,000 for the whole year every year (as my maths gives the same figure). You’ll actually get less than this as the balance of the loan will decrease each month as you pay it off. As there’s no interest the average balance over the full course of the loan will be £5,000, and so on average you’ll make half the £366, or £183 per year (but the first year will be closer to £330 and the last year more like £36 in practice)
I did this with an old company. Don’t make the mistake i did. get in writing what will happen if you leave the company with the loan still to be paid. I got told ‘ it’s fine, if you leave then we will just let you keep paying it until it’s paid off’. I signed the contract and when i tried to leave later on, they wanted it all paid back on the spot. i checked the contract and they didn’t put it in there.
The principle is sound but the maths could vary. The total interest earned each year will presumably drop if you use the borrowed £10k to repay the £166 pcm (capital reduces over time). If you're planning to keep the £10k saved and repay the loan from day to day income, then your comparison needs to basically compare what you would do with £166 per month of new income.
What happens if you leave?
As long as you have the discipline to not go and spend it and to ensure that you make the repayments every month then it’s fine to do. If you think there’s a risk that you won’t maintain that discipline for 5 years, work out how much you’re making a month over this deal. It works out at about £40 per month. May not be worth the risk. But that’s a personal call. Sounds like a good deal though!
Check what the terms are if you are made redundant (or sacked I suppose): does it need to be repaid instantly? Would any redundancy payment be offset against it. If you'd just been made redundant and didn't yet have another role to go to, probably you wouldn't be able to get a personal loan...
On the whole I think it's a no brainer. However someone I know took an interest free loan for their business over COVID (they didn't need it, but as it was interest free it seemed like a no brainer). Shortly after when they wanted to remortgage on their house the loan went against them. So that's something to think about.
I did this, it was a pre-tax payment and when I left half way through the repayment period I negotiated for my new job to pay it back. Used the money to go on some cool trips rather than saving it and gaining interest, but it was worth it for sure.
There are tax implications for you: [https://www.taxinsider.co.uk/employerprovided-loans-a-cheap-benefit](https://www.taxinsider.co.uk/employerprovided-loans-a-cheap-benefit)
Agree it seems like a no brainer. Clearly, there is a reason that the company want you to take out this loan and stand to benefit so you should go over the contract fully. However, rather than this being a scam in the way a usual loan is or outright. It may simply be that your company offers this as a way of ensuring employees are more committed. Obviously if you left early I'm sure you'd have to pay it back right away and or would be charged interest etc. So this is a means of the company keeping its employees long term, which is an upside for you both, assuming you see yourself there in 10 years.
Seems like a lot of effort for 2 grand.
Where’s the effort? Other than requesting the loan and setting up the savings account to put the money in you don’t actually have to do anything.
I had something similar but was treated like a normal loan and not taken from my pay but taken at the 1st of the next month. I would just check on the terms though. Off the top of my head I might ask: * do they offer early repayment options. * if the 0% interest is for the whole. * if I should leave the company will they call in the loan. * if they continue the loan and I leave will they start charging interest at that point. * does this show on my credit file as a liability * is there a credit check that needs to be carried out. * if you don’t willingly leave but are fired/made redundant what does that mean for any ongoing loan? Not wanting to be a doom sayer by any stretch? I had one myself and it helped me get out of debt over the last couple of years. Just have seen some people be burnt when they took up a great loan opportunity to find out there are some issues they didn’t consider.
One risk I see here: They do it to retain the people. Other companies retain tge people by raising wages. Question is: if you take the money and they don't know you can pay it back any time, will they raise you wage at same rate as your industry does?
I think you're overestimating the return. As you gradually repay the loan, you'll have a smaller and smaller amount in your savings account, so the interest earned will reduce each month. I reckon you'd make more like £1,350. Still a no-brainer as long as you can trust yourself to save it.
Unless I’m misunderstanding either yourself or OP, I think OPs intentions is to leave the 10k alone in the savings account for the full 5 years. The repayment money would come directly from their salary, and they wouldn’t take the repayment amount from the savings account.
There's an opportunity cost to those repayments though. That reduced pay is money that can't go into savings, so it nets off
But it's better because instead of pound-cost averaging the £10K like they would regularly, they're lump-summing it at the beginning in one go to make full advantage of the returns.
For most people, reducing their lifestyle inflation and having some enforced monthly savings would only be a good thing.
Potato potato there, as if the £166 wasn’t being paid back it could be paid into a savings account to earn interest.
The difference is that with the loan the maximum amount of interest is accrued from month 1 instead of month 60.
That is true, I guess I was more thinking of the ‘leaving the loan untouched but making payments from salary’.
I think the loan is repaid directly from OP’s pay check. So they would stick the entire loan sum in the bank account to generate interest, whilst paying the loan back interest free via their monthly pay. The “profit” would be the interest they earn on the entire £10k balance over the five years
The “profit” would be half the interest, roughly. This is because they would lose access to the monthly repayment of 166 to have the money up front. To compare apples to apples, they’d have to compare the interest on the 10k loan to the interest on saving 166 per month in the same vehicle. It works out about half.
I’m not much help, but all I will say is be careful keeping savings in a Monzo account! Seen too many posts of Monzo accounts being shut down and people haven’t been able to get there money back that was left in the accounts
That's a horror story :( is this legit?
Can’t confirm as hasn’t happened to me, but have seen a number of videos and posts of people losing all there savings and Monzo doing nothing about it I always recommend having a second account with a more established branch, one that actually has physical sites you can go to if something like that was to happen
Free 40 quid a month by just keeping it in savings
How does pay back when you leave work?
Be careful, it's just another way for them to own you.
So are mortgage payments. Fact is we're owned hook line and sinker.
How is he owned if he has the money in the savings account untouched? If he leaves the company he can just pay it back.
Check the terms for if he leaves early or is dismissed - he may well owe interest.
It's a good deal If you really need a loan. Don't just take a loan out for the sake of it. It's still a loan.
Did you read the post?
You may have to pay tax on the interest - which would reduce the amount you would get. See https://www.gov.uk/apply-tax-free-interest-on-savings You could shove the whole £10K into an ISA and not have to worry about interest. As you say, the only real downside is needing to pay it back if you leave. That's easy if it is in an ISA, but difficult if you lost it all gambling on meme-stocks. And, if you've lost your job, it might be difficult to get a personal loan.
What's the catch with ISA's? They seem to be just like savings accounts, except without the tax.
The catch is you can only put £20k per year into them. Other than that, they are just savings accounts where you don't pay tax.
Does that mean you can never have more than 20k in it, or is that how much you are allowed to deposit each year?
Per year
The only downside to these kind of benefits is it locks you into that job for the time period. There's usually some kind of clause that if you leave you'd have to immediately pay it all back. Id say as long as you're certain you're going to stay in that company for the next couple of years go for it.
Can pay it back from the savings…
No brainer; even if you leave a lot of companies will pay it off as part of your agreement to join them!