Allotment Loans for Government Workers
One of the purposes of allotment loans is to create a way for federal or government workers who might have bad credit to be able to obtain a loan with reasonable terms. Two different types of loans are available for this purpose. However, you should be careful as to which lender you choose. Unfortunately, many lenders try to exploit borrowers, particularly those who are active in the military or veterans, with unfair terms and complicated lending agreements. Therefore, The Military Lending Act was passed in order to safeguard the low-income borrowers also actively serving in the military from these exploitative practices.
Defining The Military Lending Act
In 2006, the Department of Defense (DoD) enacted The Military Lending Act (MLA) in order to protect active-duty military personnel and their families. There are a number of rights that you are entitled to if you fall under this category.
First and foremost, the MLA has implemented an interest cap which guarantees that you won’t be charged more than 36 of the Military Annual Percentage Rate (MAPR). This interest rate is generated by including a number of costs.
These include finance charges, fees relating to insurance or premium costs, credit insurance, any additional products related to credit, and application fees.
The act also ensures that there are no mandatory waivers. This means that a lender cannot ask you to forgo consumer protection laws. This has also been covered by the Service Members Civil Relief Act.
In addition, there must not be any mandatory allotments. Basically, this says that lenders cannot say that a voluntary military allotment is included as a condition in their contract.
Finally, there is a condition that the creditor cannot charge a penalty if you decide to pay back some of the loan, or all of the loan, earlier than expected. This is called a prepayment penalty and many creditors have been known to sneakily include this in their lending agreement.
The Department of Defense made the move to expand the coverage of this act to cover every type of credit that is listed in MLA.
Some example of this include:
- Payday loans
- Lines of credit or non-traditional overdraft services
- Installment loans
- Some student loans
- Credit cards issued later than the 3rd of October, 2017
It should be noted that even though enlisted service members were previously prohibited from receiving allotment loans, there are many other government personnel who are eligible to secure the loans.
Federal Employee Guide to Allotment Loans
Generally, there are two categories of allotment loans that federal employees are able to receive. We’ll go through both of them in detail for you below.
Discretionary Allotment Loans
These types of loans are typically used for the purpose of paying monthly costs. The borrower may decide on a given amount of money that can be taken directly from their paycheck in order to pay back the loan. The time frame of a discretionary loan depends on the situation and can start and finish at any decided time.
The difference between this loan is that there must be an agreed upon date for the loan to begin and finish. In other ways, a non-discretionary loan is similar to a discretionary loan. You’ll still be able to decide on a predetermined amount to have taken from your paycheck in order to pay back the loan.
It’s often easy to qualify for both of these types of loans even if you have poor credit. The exact details of the allotment loan will be decided between you, the borrower, and the lender. The reason that these loans are easy to qualify for is that as long as you are employed by the Federal government, the creditor can expect to be paid back on time. Your repayment of the loan will be broken up by the time period decided and come from your paycheck every month.
There are definitely some advantages to these types of loans, especially for government employees who have certain protections in place. Below are some of the benefits you receive by seeking an allotment loan as a government employee.
Lending amounts may vary from a couple hundred dollars to thousands of dollars depending on your needs. There is no minimum or maximum threshold when it comes to an allotment loan.
You probably won’t be surprised to find out that a huge proportion of Americans have a credit score below 599. The good news is that allotment loans are much easier to qualify for than traditional loans. Even if you do fall into this category of having bad credit, you’ll likely qualify thanks to the federal safeguards in place. These loans are designated for the specific purpose of giving government employees the resources to obtain the money they may desperately need.
The other added benefit to these types of loans is the fast approval process. The wording of the federal guidelines for these types of loans takes into account that you’ll probably need access to the funds in a timely manner. That is because a lot of people seek allotment loans to cover medical expenses, automotive work, and other emergency situations. For this reason, we’ve seen people able to qualify for an allotment loan just a few minutes after submitting an application.
It should also be noted that you won’t need a ton of paperwork to complete the loan application forms. Most of the documentation necessary to qualify is as simple as having your ID. Provided that you can prove you are at least 18 years old, a U.S. citizen, and have your bank details, there really isn’t much else that is typically required.
Another benefit to most of these allotment loans is their short payment plans. As a government employee, you have certain additional rights when it comes to defining the terms of your loan. This means that you will be able to negotiate with your borrower to determine a specific duration for your allotment loan. You’ll have the peace of mind knowing that there is a definite end to your loan period.
You won’t have to worry about explaining the reasons for which you require the loan. In fact, as a government employee, you’re given a certain sense of spending freedom when it comes to installment loans. Not only does this give you flexibility, it also allows you to retain some sense of confidentiality between yourself and the lender.
This type of loan is especially useful in desperate times. The purpose of this borrowing is to make it easier to gain access to much-needed funds in a time of emergency. Basically, the federal government wants to safe-guard their employees when they may need it the most.
Finally, it’s a huge benefit that these allotment loans almost always have a fixed interest rate for the entire duration. You won’t have to worry about your lender increasing the rate if there is a missed payment or inflation. This is meant to give the borrower peace of mind in knowing the exact amount that is due each month. It’s somewhat a relief being able to control your finances knowing that your loan will have a fixed rate.
The Downsides of Allotment Loans
We’ve already covered the benefits that allotment loans have for government employees. However, it is important to note some of the disadvantages that you might encounter. Below are examples of a few key points to also consider.
You are only guaranteed an allotment loan as long as you are a federal employee. Should you quit or be let go of your federal position, you will still be required to pay back the loan as agreed upon. In addition, your lender will receive notification should you leave your current federal employment.
In some cases, a borrower may decide to take out multiple allotment loans at the same time, due to the ease of approval described above. It’s important to recognize the responsibility of paying back these loans and crucial that you do not find yourself in a worse-off situation or one where you are constantly in debt.
We’ve also seen some examples where bigger corporations will initiate contracts with employees directly instead of contacting their employers or HR departments. This may result in the lender taking larger amounts than necessary from your paycheck.
If you already find yourself in debt, these loans may seem predatory in a sense due, once again, to their ease of approval. You could find yourself building more debt and creating a larger financial burden for yourself.
Make sure to limit the amount of loans that you take out even though there are few restrictions in place for this. If you are already struggling to pay off debt, take the time to consider if another loan will help your situation or harm it.
As an employer, there are many benefits to giving your employees access to installment loans. Oftentimes an employee may be dealing with a significant financial hardship that affects their performance and overall well-being. These financial crises can prove to be a huge burden for anyone and it is such a huge relief for employees to know that an installment loan may be able to help them during their time of need. In addition, these installment loans for government employees are much more beneficial than payday loans. They are not required to be paid back in full before their next paycheck and have much better rates. This can give employees even more relief knowing that they don’t have to scramble in order to pay back a short-term loan.
BMG Money’s Allotment Loan Alternatives
We want to make it as easy as possible to navigate the various lending opportunities for federal government employees. That’s why the professionals at BMG Money take the time to explain every detail of every option that is available. It’s important to us that every borrower understands their rights and is able to make the best decision when it comes to loans in order to secure a bright financial future.
BMG Money offers a wide variety of lending options that can give employees something else to consider in the field of traditional allotment loans. We proudly partner with local municipalities, government offices, and schools to offer the best solutions possible. Since our loan programs are designed to be an additional option for employers to offer, there is no risk of dealing with predatory lenders or trying to decipher complicated contracts.
We offer clear and fair terms which employees will easily be able to pay back. On top of that, we notify credit agencies of satisfactory repayment history. We’re also available to offer financial consulting and pride ourselves on having great customer satisfaction. The stress that comes along with taking on debt is something that we strive to relieve and BMG Money is ready to take our lenders to a place of true financial security.