Payroll Deduction Loans: A Helpful Guide

Shanzaib Malik
payroll deduction loans guide

Payroll deduction loans can help you save money and avoid predatory lenders.

According to a recent survey, less than four out of ten Americans can afford an unexpected $1,000 expense. The problem? The average unexpected expense was around $3,500, and around a third of Americans reported experiencing a financial emergency within the past year.

A lot of people believe that the traditional way of analyzing credit is broken. Credit scoring takes a very narrow approach when investigating the creditworthiness of a borrower. Payroll deduction loans aim to change that. Instead of using complex algorithms to arrive at a three-digit credit score that’s used to approve or deny applications, payroll deduction loan lenders use your job history and experience as part of their underwriting procedures.

In this article, we will thoroughly evaluate what payroll deduction loans are, including how you can get started today if you’re interested.

What are Payroll Deduction Loans?

Payroll deduction loans are like traditional loans, except that loan repayments are taken from monthly salary deductions. Instead of using your credit score, some payroll deduction lenders may use alternative data like cash flow, income, and payroll data to approve or deny applications.

Traditionally, employees would have to approach their HR department or boss to ask for payroll deduction loans. The chances of getting approved were slim, or many companies do not have a policy that allows lending money to employees due to the legal and compliance risks.

Over the past few years, many companies have begun collaborating with financial service providers like Stately Credit to begin offering payroll deduction loans to their employees.

They recognize the profound impact that financial stress can have on an employee’s performance and a company’s bottom line. In addition, attracting and retaining the best talent often requires moving beyond traditional benefits like retirement plans and insurance to include alternative benefits like payroll deduction loans and financial wellness programs.

Payroll deduction loans are supposed to help workers confidently deal with short-term financial emergencies that impact their ability to focus on work or perform to the best of their abilities. They can also help build credit and promote healthy saving habits.

The program is simple, and accessing a payroll deduction loan is as simple as logging into your account with a company like Stately Credit and filling out an application that takes less than a minute.

How Payroll Deduction Loans Work

For millions of Americans, getting access to affordable sources of credit is a challenge. According to the CFPB, 26 million Americans did not have a credit history with the three major bureaus. An additional 19 million were “thin file,” which means they do not have a good credit history that lenders can use to determine creditworthiness and price loans. To top it off, around thirty-four percent of people with credit scores were in the subprime range, meaning they are either have restricted access to credit or only qualify for the highest interest rates, making borrowing money expensive and unaffordable.

With payroll deduction loans, even if you have a bad credit score or thin credit file, you will still be able to qualify. If your employer has already partnered with a company that providers payroll deduction loans, ask HR about how you can apply.

On the other hand, you could use a company like Stately Credit, which does not require your employer to partner with us beforehand. You can fill out an application on our website, and it takes under a minute. You can get anywhere from $1,000 to $25,000, with interest rates as low as 5.9% APR.

Repaying the loan is simple. We link up with your payroll software during the application process and seamlessly coordinate salary deductions each month. All payments are reported to the big three credit bureaus, increasing your credit score in the process.

What Can I Use a Payroll Deduction Loan For?

Payroll deduction loans can be used for practically anything.

According to a study from the Pew Charitable Trusts, six in ten American households experienced at least one financial shock, like home and car repairs, medical expenses, or other unexpected expenses, in any given year. Additionally, nearly forty percent of families between 2013 and 2015 had to make unplanned payments of around $1,500 for medical reasons, car expenses, or taxes.

How is this relevant? Even an unplanned expense as little as $400 is enough to create financial hardship for many families. Nearly half of Americans lack an emergency fund large enough to cover at least three months of expenses.

According to research, around thirty-two percent of payroll deduction loan borrowers use the loans to pay for unplanned expenses or to bridge temporary budgetary or income shortfalls, while nine percent use them for large significant purchases.

If borrowers face income shortfalls regularly, using a payroll deduction loan can only help so much. It’s critical to work on finding longer-term solutions to help enhance your financial security, such as finding ways to increase your income, reduce debt, or save and invest more of your money.

How to Apply for a Payroll Deduction Loan

Applying for a payroll deduction loan is similar to other types of loans. The main difference is that your income, employment, and payroll deductions are established and verified directly through the payroll software your company uses. So, for example, during the loan application, one of the steps will be about connecting your payroll account by filling in the credential to your account. If you do not know what they are, there is a straightforward process for finding your details. Applying for a payroll deduction loan shouldn’t take more than a couple of minutes. Here’s the type of information you will be asked to supply during your application:

  • Loan Amount
  • Loan Duration
  • Name
  • Email
  • Date of Birth
  • SSN
  • Phone Number
  • Current Address
  • Previous Address
  • Employer Name
  • Income
  • Additional Income
  • Pay Frequency

Pros and Cons of Payroll Deduction Loans

As with everything, there are benefits and downsides. Let’s review them in detail:


  • Repayments are made through payroll deductions, making it easier to pay on time.
  • The cost to borrow is lower on payroll deduction loans because the risk of default is lower.
  • You qualify for a payroll deduction loan even if you have bad credit or non-existent credit history. The main requirements are that you have a stable job.
  • You can receive funds in as little as 24 hours. Stately, credit even offers instant payments on approved loans.


  • You need a stable job (at least three months) to qualify.
  • If you have severe delinquencies on your credit report, you may be denied.
  • You could be denied when fraud is apparent or if your lender has trouble verifying your employment.
  • Some providers insist that your company reaches out to them before you get access to payroll deduction loans.
  • Some gig economy workers may not qualify for payroll deduction loans.

How Payroll Deduction Loans Impact Your Credit

Like other types of loans, payroll deduction lenders report every payment you make to all three credit bureaus. By collecting repayment through salary deductions, many people say that these types of loans are stressful by helping them pay on time and improve their credit score in the process. Making payments on time impacts the most significant chunk of your credit score; payment history. Additionally, you also get points for diversifying your credit mix and adding new credit to your portfolio. If you continue paying on time, you should see your score improve in a few months.

Alternatives to Payroll Deduction Loans

Alternative Financial Services

According to FINRA’s financial capability study in 2018, twenty-nine percent of Americans had used payday loans, auto-title loans, pawnshops, and rent-to-own services in the last five years. The problem? Those alternative sources of loans typically cost ten times more than what a person with a prime or excellent credit score would pay.

For example, a $400 payday loan repaid over three months at a 391 percent APR would cost around $684 in total. High-interest loans with short repayment periods can often trap people in cycles of debt that can be hard to recover from.

Compared to a payroll deduction loan, payday loans are predatory, expensive, and should be avoided at all costs.

Bank Overdraft

Using bank overdrafts is another alternative to payroll deduction loans. Nearly a third of checking accounts in America are overdrawn each year, while approximately eight percent of accounts are overdrawn more than ten times a year. The fees on an overdraft are usually very high. For example, a $35 overdraft fee, which is the average, could represent an APR as high as 17,000%, a lot higher than the 5.9% – 19.9% that you can get with payroll deduction loans. Overdraft fees in the US amount to roughly $17 billion a year.

Retirement Account Withdrawals

Another option is withdrawing money from your retirement account, but this option is typically the most expensive long term, mainly due to the effect of compounding interest. People who experience an emergency and unplanned expenses generally are more inclined to withdraw money from retirement accounts than those who do not share any financial disruptions. A $10,000 withdrawal could amount to as much as $43,000 in lost savings over 30 years. Defaulting on your retirement loans can also lead to tax penalties if you’re not careful.

The Difference Between Payroll Deduction Loans, Earned Wage Access, And Salary Advances.

Payroll Deduction Loans:

Companies that offer payroll deduction loans partner with forward-thinking companies to provide affordable loans that are repaid through monthly payroll deductions as a benefit. In exchange, they provide higher acceptance and lower interest rates than traditional loans. You can borrow anywhere from $1,000 to $25,000 or more with payroll deduction loans and pay interest rates as low as 4.9% and loan terms that range from 6 to 60 months.

Earned Wage Access:

Earned Wage Access companies provide employees with immediate access to wages they’ve already earned ahead of their next paycheck, interest-free. These types of products are not loans and are not recognized as a “credit” product by the CFPB. You are essentially paying a fee for access to your own money rather than paying to borrow money from a service provider. They are three different strategies used for pricing Earned Wage Access products:

  1. Membership Model – This is where you pay a small monthly fee for unlimited access to earned wage access withdrawals. Companies usually charge anywhere from $5 to $10 a month for this service.
  2. Transaction Fee – This is where you pay a small transaction fee, ranging from $2 to $25, for early access to your wages.
  3. Pay Card – This is the most expensive model because you have to begin transferring your salary to a card provided by the Earned Wage Access company, and they make money through interchange fees every time you spend money on it.

Salary Advances

Earned Wage Access products are not loans. Salary Advances are loans. They are short-term credit products that are designed to be an affordable alternative to payday loans. To qualify, you need a stable job, meaning that you’ve been with your current employer for three months or longer. People with little or bad credit histories may still have access to salary advance loans. Salary Advance companies typically charge an origination fee, and some may even charge interest rates.

Bottom Line

If you need affordable access to credit, you should strongly consider a payroll deduction loan. If you’re considering a payroll deduction loan, you should check out Stately Credit. We over affordable and responsible payroll deduction loans and designed them to be an alternative to raiding your retirement account or using expensive credit cards when faced with financial emergencies. Say goodbye to financial stress, and hello to financial wellness!

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