Understanding The Difference Between The Two Types Of Allotment Loans

What are the two types of allotment loans for federal employees? Understand the differences between discretionary and non-discretionary allotment loans. 

If you are a federal employee living paycheck-to-paycheck like 78% of American workers, you may have considered applying for an allotment loan. Before you dive into an allotment loan, you need to know the two types of allotment loans for federal employees and their differences.

What Are Allotment Loans?

An allotment loan is a type of loan specifically for federal employees who need funding for a variety of reasons. An allotment loan is similar to a personal loan in that it can be used for anything, doesn’t require collateral, has fixed interest rates, and fixed payment terms. 

Allotment loan gets its name from its repayment term--the borrower allots a portion of their paycheck toward the said loan payment. This gives the lender a level of security that the loan will be paid as long as the borrower works for the US government. This is why they can offer better terms for federal employees with bad credit since it is easier to apply and get approved. When you apply for allotment loans for federal employees, you will encounter two types: discretionary allotment loans and non-discretionary allotment loans.

What Are The Two Types of Allotment Loans For Federal Employees?

The main difference between discretionary and non-discretionary allotment loans is in the payment terms. For both types, the payment will be deducted from your salary until you pay the entire amount. So, if you get paid bi-monthly, expect a deduction on both paychecks. 

Discretionary Allotment Loans

In a discretionary allotment loan, the borrower has control over the terms of repayment for the loan. The borrower decides how much will be taken from their monthly salary. This, then, determines how long the loan will last. In other words, how long it will take for you to pay off the full loan amount, including the interest.

Discretionary allotment loans are good for those who have other financial responsibilities because it gives them the freedom to manage their finances. 

Non-Discretionary Allotment Loans

Non-discretionary allotment loans take away the control from the borrower and give it instead to the lender. Hence, it is the lender who decides how much will be deducted from the borrower’s monthly salary, as well as the “end date.” Again, the end date will depend on how long it takes to pay off the loan.

In a non-discretionary allotment loan, the borrower still benefits from fixed interest rates and repayment terms, which the lender should discuss before approving your allotment loan.

Don’t fall into the traps of loan sharks. Apply for an allotment loan with us and get approved quickly. 

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