Loan From Employer

thejamesbond

Good Afternoon,

I am looking for some help.

I joined a company on 2nd October 2023 and in addition to my salary, I was given a loan from my new employer in order to buy a vehicle (as I had a company car previously). The loan was written into my contract of employment stating that upon signing the contract, the company would make an interest free loan to me, towards the purchase of a new car. The loan was to be repaid over 12 months in equal installments, from the monthly pay received in arrears as per the contract of employment.
It goes on to state that: "If you leave employment before the loan has been repaid, we reserve the right to deduct any outstanding balances from any final pay and if this is not sufficient to cover the remaining balance, you will be expected to make immediate payment of the balance due on the day employment ceases."

My employer then made the decision to terminate my employment at the beginning of December, thus meaning the balance of the loan was due. Unfortunately, I was not in a financial position to repay the loan (I had no savings and had recently been moved into temporary accommodation by the Local Authority due to a relationship break up) and since that date, my only income has been Universal Credit and Child Benefit (I am a single parent of a 14 year old).

I have received various WhatsApp messages from the Director regarding the loan since then, and I have informed them that as soon as I am in employment, I will contact them in order to agree a repayment plan.

Today, I have received communication from a third party collections agency threatening legal action (which would include a claim for their costs, court application costs and interest of 8% per annum, commencing on the date my employment ended).

I suppose my questions are:
Can they legally charge me their fees, costs and interest, given there was not a legal mechanism in the agreement nor was this an agreement signed under the CCA?
I have already accepted liability to repay the debt, and have also commenced token payments of £1 per week, commencing today, is there anything more I should do?
I no longer have the vehicle I purchased at the time, I did in-fact SWAP it for another one (and received some cash my way) as it was no longer economical due to becoming unemployed, could this be used against me? Could i be 'made' to forfeit my car?

Thanks for any information/advice in advance.

Grumpy_chap

thejamesbond said:

Good Afternoon,

I am looking for some help.

I joined a company on 2nd October 2023 and in addition to my salary, I was given a loan from my new employer in order to buy a vehicle (as I had a company car previously). The loan was written into my contract of employment stating that upon signing the contract, the company would make an interest free loan to me, towards the purchase of a new car. The loan was to be repaid over 12 months in equal installments, from the monthly pay received in arrears as per the contract of employment.
It goes on to state that: "If you leave employment before the loan has been repaid, we reserve the right to deduct any outstanding balances from any final pay and if this is not sufficient to cover the remaining balance, you will be expected to make immediate payment of the balance due on the day employment ceases."

My employer then made the decision to terminate my employment at the beginning of December, thus meaning the balance of the loan was due. Unfortunately, I was not in a financial position to repay the loan (I had no savings and had recently been moved into temporary accommodation by the Local Authority due to a relationship break up) and since that date, my only income has been Universal Credit and Child Benefit (I am a single parent of a 14 year old).

I have received various WhatsApp messages from the Director regarding the loan since then, and I have informed them that as soon as I am in employment, I will contact them in order to agree a repayment plan.

Today, I have received communication from a third party collections agency threatening legal action (which would include a claim for their costs, court application costs and interest of 8% per annum, commencing on the date my employment ended).

I suppose my questions are:
Can they legally charge me their fees, costs and interest, given there was not a legal mechanism in the agreement nor was this an agreement signed under the CCA?
I have already accepted liability to repay the debt, and have also commenced token payments of £1 per week, commencing today, is there anything more I should do?
I no longer have the vehicle I purchased at the time, I did in-fact SWAP it for another one (and received some cash my way) as it was no longer economical due to becoming unemployed, could this be used against me? Could i be 'made' to forfeit my car?

Thanks for any information/advice in advance.

It is clear that the loan needs to be repaid, and you seem to accept that as being the case.

The best way to move forwards would be to maintain communication with the former employer and make it clear that you intend to repay the loan in full as swiftly as possible.  That might encourage the former employer to accept the cash-flow impact and not incur further costs for debt collection / interest.  

How much was the original loan?
How much was repaid before you left the company?  (3/12ths I presume)
Was the full December pay also withheld by the employer to repay the loan?
Did the agreement about repayment set out timescales for "immediate" repayment and fees / interest if that was not adhered to?
How much was the cash that came your way by "swapping" the car?
How much is the value of the car you currently have?

The best thing would be to make the largest repayment you can to the former employer to get the value of this debt as low as possible.  That will also help to mitigate any costs the former employer might consider, and encourage them to show some forbearance.

DullGreyGuy

Statutory interest of 8% is what applies if a contract doesn't otherwise specify and interest rate on debts. 
Similarly its basic law on court costs for having to recover debts from a breach of contract.

How much of the loan is outstanding? What costs, if any, they can recover without any clauses to rely on in the contract will depend which "track" of the county court it goes to. Small track, under £10k then legal costs etc basically cannot be added, Fast track (up to £25k) then costs are fixed based on award and Multi-Track then its reasonably incurred costs. 

thejamesbond

Thanks for your replies,

The loan was for £7.5k
I made a payment of £625 at the end of November
They took £1100 as a nominal payment from my final salary payment (this has not been agreed or disupted)

I now owe £5775

My concern is the threat of court action, those costs, a CCJ etc... when i sincerely WANT to repay it, I just cannot afford to. I no longer have the vehicle as mentioned and the loan was simply paid into my bank account (for me to use towards the purchase of a vehicle).

DullGreyGuy

The vehicle is irrelevant, you could have bought a 98" TV with it if you'd wanted to. It's a much more simple case of you having been lent money with conditions of immediate repayment in certain events. Those events have occurred but it's not been repaid hence the breach of contract and their options to try and enforce it. 

A CCJ only occurs after the court has made a ruling and you've not paid it in full in 30 days. Assuming you filed a defence etc it would be many months before the judgement is made and the one month clock starts ticking. Hopefully in that time you'd have found appropriate employment and be in a position to raise funds to repay them within the 30 days and thus avoid a CCJ on your record. 

Grumpy_chap

thejamesbond said:

Thanks for your replies,

The loan was for £7.5k
I made a payment of £625 at the end of November
They took £1100 as a nominal payment from my final salary payment (this has not been agreed or disupted)

I now owe £5775

My concern is the threat of court action, those costs, a CCJ etc... when i sincerely WANT to repay it, I just cannot afford to. I no longer have the vehicle as mentioned and the loan was simply paid into my bank account (for me to use towards the purchase of a vehicle).

That has answered some of the questions I asked.
The only way to avoid further costs and avoid the risk of a CCJ is to make full repayment in the quickest possible way.

When you "swapped" the vehicle and received some cash your way - how much was that?
Where is that cash now?
What is the alternative vehicle that you have now?  What is the value of that vehicle?

Ultimately, the employer facilitated this loan as a means to enabling you to fulfil the needs of the job role. 
There is no reason for the employer to continue to extend any grace.
There will be a need for the employer (and yourself) to have this all resolved with some expediency so as to be sure that there are no tax implications of having the "interest free loan" from the employer.

The employer will be wanting to see some evidence that you really intend to repay this loan in a sensible timescale.  The nominal £1 per week that you have unilaterally started from today will not be that convincing.  £5,775 at £1 per week is 111 weeks, means over 9 years to get the matter fully closed out.  Plus, for a business, receiving deposits of £1 will cost them more to administer each payment than the value of the payment.

thejamesbond

I swapped the vehicle for one estimated value of £5k and used the £2k cash to prepay for the insurance and tax etc as I knew I was not going to be able afford monthly repayments whilst unemployed. Plus the car I swapped it for is more economical.

My current circumstance means I am unable to pay the debt or any significant amount until I am back in employment and a permanent place of residence, I am concerned though that I am going to be made to pay back a lot more with court fees, legal fees and interest 

DullGreyGuy

thejamesbond said:

I swapped the vehicle for one estimated value of £5k and used the £2k cash to prepay for the insurance and tax etc as I knew I was not going to be able afford monthly repayments whilst unemployed. Plus the car I swapped it for is more economical.

My current circumstance means I am unable to pay the debt or any significant amount until I am back in employment and a permanent place of residence, I am concerned though that I am going to be made to pay back a lot more with court fees, legal fees and interest 

The monies owed is under £10,000 and so legal fees are by standard not chargeable, though the court has discretion if they feel you've been vexatious etc. 

Grumpy_chap

thejamesbond said:

I swapped the vehicle for one estimated value of £5k and used the £2k cash to prepay for the insurance and tax etc as I knew I was not going to be able afford monthly repayments whilst unemployed. Plus the car I swapped it for is more economical.

My current circumstance means I am unable to pay the debt or any significant amount until I am back in employment and a permanent place of residence, I am concerned though that I am going to be made to pay back a lot more with court fees, legal fees and interest 

The obvious thing to do would seem to be to sell the £5k car, obtain a refund on the remaining proportion of the insurance and VED.  That should get you to a point where the full amount of the loan owing can be repaid and leave you a few £'s in hand with a fair wind.

EDIT TO ADD:
In addition to resolving this loan from the former employer, the OP would be well advised to review their overall budget.  One methodology to get some good advice in this regard would be to prepare their SoA (statement of affairs) and share in the DfW (debtfree wannabee) area of this forum.  There are links to templates for the SoA in that DfW area - I understand that the lemonfool template is popular.

Nebulous2

I think you need some of the debt experts to advise you @sourcrates

You should engage with the company and make an offer of what you can afford. The court will look favourably on an offer as they may also make an order based on your current circumstances of an affordable amount per month. 

Adam173

Genuine question. 

What was the wording of your contract in terms of repaying the loan at the end of employment?

If you chose to leave the company before the loan was repaid then fair enough id expect them to chase you, but in this case the company has terminated your contract in full knowledge that you wouldnt have any income or means to pay it back….sounds a bit ‘off’ to me!