I have made this mistake once before and thought I’d share my experiences. Here’s why I believe you should not opt for a loan from your employer:
- 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. I used to end up getting frustrated when this continued to happen each month, but they served as a good reminder of my mistake and actually motivated me to get out of the situation.
- 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.
With some fanatic fiscal steps, I managed to come out of this situation sooner than I thought it would take. I know I will NEVER repeat this mistake again. Once was good enough a lesson for me.
What do you think? Do you have an experience to share?