Taking loan in crisis times
We all find ourselves in tough financial spots from time to time, where there is just too much month at the end of the money.
Old Mutual's 2018 Savings & Investment Monitor reveals that close to 50% of South African metro working households found themselves in that position at least once in the past year.
What's worse, the monitor also tells us that 38% of households earning between R14000 and R19999 simply can't cope with a financial emergency of R10000.
"When this happens, households turn to multiple sources for money like their savings or taking out a personal loan, but turning to family and friends is most prevalent," John Manyike, head of financial education at Old Mutual, says.
However, turning to friends and family can be uncomfortable if you have burned your bridges or if your family and friends are sinking financially themselves. This gets even more complicated when you have to turn to a co-worker or employer for a financial boost.
"Loans from your co-worker or employer are tricky as there's the potential of denting staff morale and your reputation if you're constantly taking loans or defaulting on payments. So, it's vital to think it over and assess whether you really need the money or have other options available,"
Thandi Thankge, an independent human resources and payroll consultant, says.
Asking co-worker for help
If you have no other options, do keep in mind that the loan request may catch your co-worker off-guard. You can help them reduce the risk by offering proof of trustworthiness by committing to a repayment term and getting the loan agreement in writing. The following will also assist:
Offer information by explaining why you need money so your co-worker can determine the urgency of your request;
Don't put pressure on your co-worker to give you what they don't have, what might affect their own budget or to look for an explanation when they decline;
Be open to alternative solutions your co-worker may offer like seeing a financial planning adviser, as they are showing concern without risking their own finances.
An advance from employer
A recent PriceWaterHouseCoopers survey tells us that one in five employees spend up to three working hours a week dealing with personal finance issues. It therefore makes sense for an employer to care about your financial wellbeing for improved productivity.
"A good start for an employer would be to survey staff to understand their financial position and also to check their garnishee orders. A comprehensive financial wellbeing programme for employees can also go a long way," Jerry Botha, master rewards specialist at the South African Reward Association, says.
However, your financial situation may be so dire that you need cash to pay pressing expenses. In this case, your employer can also offer different types of credit:
Loans where no interest, charge or fee is imposed;
Interest-bearing loans where interest is charged; or
Salary advances where a portion of your salary is paid in advance and recovered at the end of the month or in instalments.
According to Sage's Payroll Tax Pocket Guide for 2017/18, a taxable benefit arises if your employer grants you a low or interest-free loan but if the loan is casual, irregular or does not exceed R3000, no taxable value is calculated.
If the loan is taxable, it must be declared to the SA Revenue Service (Sars) and you will be liable for fringe benefits tax because your employer gave you a benefit. Be aware that under certain conditions loans granted by employers fall under the provisions of the National Credit Act (NCA) where the employer will need to register as a credit provider.
"This can be quite a cumbersome process, which is why we recommend employers rather to remove their exposure to the NCA and Sars by outsourcing the granting of loans to financial institutions," Thankge says.
Live within your means
The experts agree that the one time you can borrow at work is when financial institutions and micro lenders no longer want to advance you money due to a poor assessment of your ability to afford the loan.
At all times it is wisest to stick to your budget and live within your means rather than borrow.