Allotment Loan

Full definition

An allotment is a portion of a paycheck that is automatically directed to a specific destination (like a savings account or a loan payment) before the employee receives the remainder. Allotment loans leverage this mechanism to guarantee repayment. How allotment loans work: You apply for the loan through a participating lender (often a credit union or specialty lender). If approved, you authorize a payroll allotment with your employer or agency. Each pay period, the loan payment is automatically deducted from your gross pay before your net check is calculated. Because payment is guaranteed and automatic, default risk is very low, often resulting in lower rates and easier approval. Who offers allotment loans: Navy Federal Credit Union and Pentagon Federal Credit Union offer allotment-style repayment to military members. Kashable partners with federal agencies and some large employers to offer workplace loans repaid via payroll allotment. Many state and local government credit unions offer similar products for public employees. AAFES (Army and Air Force Exchange Service) offers employee loan programs. Benefits over standard personal loans: Lower default risk means some lenders approve applicants with lower credit scores. Automatic repayment eliminates the risk of forgetting to pay. No late fees (payment is automatic). Some lenders offer lower rates (12%-24% vs 20%-36% for comparable personal loans). Risks: If your pay period amount is sometimes lower than the allotment (overtime fluctuations, leave without pay), your paycheck may be insufficient. If employment ends, the allotment stops and the full balance often becomes immediately due. Read the employment-separation clause carefully before borrowing.

• Payoff Amount
• Verification of employment (VOE)
• Loan Servicer