Companies around the world do give their employees Loans towards various requirements. Be it Housing, Vehicle, Distress or even marriage. It is important that a ‘Loans System’ should be flexible to cater for the numerous types of Loans a Company may decide to give their employees from time to time and that a secure and flexible recovery system is also in place.
There are two basic types i.e. Fixed Installment and Variable Installment Loans with either Fixed or Variable Interest
Fixed Installment Loans
This is where Installment is fixed and interest is allocated first and the remainder goes towards setting off the outstanding Capital. The formula for calculating the installment is as follows.
PV= Present Value
r= rate per period
n= number of periods
If the interest changes then the installment needs to be re-calculated for the balance number of periods against the outstanding or present value of the loan
Variable Installment Loans
In this type of Loan the Capital repayment is a fixed amount over tenure of the loan and in addition the interest for the installment period is payable.
When choosing a Loans System it is important not only to be able to set-up different types of Loans and disperse them but also to be able to re-structure the repayment if required. The Loans need to have limits both individually and across the Company as a whole. Employee eligibility to obtain a particular type of loan i.e Service period, Grade, and Repayment capability etc. should also be built-in.
Loans dispersed should take into consideration that only a percentage of an employee’s take-home pay is recovered so that he or she does face hardship in their day to day needs. Today as we try to become Eco conscious and do away with as much paper wastage as possible, the ability to apply on-line and get approval on-line and where required using work-flow is an added advantage.
Rules and criteria for collateral and guarantors for each type of loan plus a check list as to the documentation required can be very useful as well.
Another function that needs to be considered is the foreclosure of loans and of course recovery through payroll save time and money.
To summarise the following should be looked into when choosing a ‘Loans System’