Payroll loan: what to know before applying

A salary-secured loan (CASH) is a specific type of personal loan available in Italy, repaid through the assignment of portions of one's salary or wages, up to a fifth of the salary amount, net of withholding taxes.

Loan Features

The unique feature of this financing solution is that repayment is made by withholding the installment directly from your paycheck, but the maximum repayment amount cannot exceed 1/5 (i.e., 20%) of your continuous net monthly salary . Furthermore, the maximum permitted term is 120 months, and the minimum is usually no less than 24 months. What are the risks?

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The risk of the borrower voluntarily defaulting on a loan installment is significantly reduced with this approach. The employer is required to accept an employee's salary-backed loan application and will pay the installment to the bank, deducting the amount from the employee's paycheck. In the event of resignation or dismissal, the employer must withhold any sums accrued by the employee (final salary, thirteenth salary, unused vacation, etc.) from the company and pay this amount to the lending bank. The law requires that, when entering into a contract with the finance company, life and employment risk insurance be taken out. In the event of "employment risk," the insurance company intervenes, but has the right of recourse against the borrower, up to the limit of the severance pay (TFR ) accrued up to that point. This amount, set aside by the company in a special fund, is therefore unavailable to the borrower accessing the loan. In the event of a "life risk," the insurance company intervenes without claiming recourse against the heirs. What would the loan structure be?

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The main financial elements of this operation are:

• the instalment whose amount is determined within a maximum threshold equal to one fifth of the salary received by the debtor
• renewal before the deadline for which at least 2/5 of the repayment period must have elapsed (40%)
• Early renewal is possible even before 2/5 if the loan is renegotiated from a 60-month term to a 120-month term only once.
• frequency of the repayment installments, established by the legislator on a monthly basis
• the duration of the loan, established within a maximum of ten years (120 monthly payments), compatible with the retirement date even if ministerial employees have the right to transfer the loan to their pension and sometimes even some public employees.
• the interest rate (TAN), set as fixed by the legislator for the entire duration of the loan, and the cost structure of the operation, summarised by the Annual Percentage Rate (APR) which includes all costs, including insurance premiums.

Who can provide it?

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Anyone wishing to obtain a salary-secured loan must contact a credit broker registered in the Bank of Italy's register. Their role is to act as an interface between the client and the banks or financial intermediary firms. The broker is then paid by the banks, not the loan applicant. Another professional is the financial agent, also registered in the Bank of Italy's register of "Financial Agents." Both positions must be registered with the ISVAP register. Who can apply?

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All categories of employees, both state and parastatal, as well as private companies. Law 80/2005 extended the possibility of assigning part of their salary to pensioners of all social security institutions. Public employees can then decide whether to pay off the debt or transfer it to their pension. Pensioners can also access the assignment, and in this case, the deadline cannot be later than 90 years of age. Employees of private companies can also apply, but the bank or financial institution reserves the right to evaluate the guarantees. In conclusion, it is a good idea to gather as much information as possible from the various insurance companies, as the evaluation criteria may vary.