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View full libraryThis Loan Repayment Agreement Letter provides a clear written record of a loan made by an employer to an employee and the agreed arrangements for repayment. It confirms the loan amount, repayment schedule and authority for agreed deductions from pay.
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[Sender name]
[Sender address]
[date]
[Recipient name]
[Recipient address]
Dear [Recipient first name],
Employee loan
This letter confirms the terms of the loan provided to you by [Company Name] and the arrangements agreed for repayment.
| Employee: | [Employee Full Name] |
| Job title: | [Job Title] |
| Loan amount: | £[Amount] |
| Date loan provided: | [Date] |
| Purpose of loan: | [Purpose] |
Loan payment
[Company Name] has agreed to provide you with a loan of £[Amount]. The loan will be paid to you on [Date] by [payment method].
You acknowledge that the amount provided is a loan which you are required to repay in accordance with the terms set out in this agreement.
Repayment arrangements
You have agreed to repay the loan as follows:
| Total amount to repay: | £[Amount] |
| First repayment date: | [Date] |
| Repayment frequency: |
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This letter provides a straightforward way for an employer and employee to document an employee loan and agree how it will be repaid. A properly documented arrangement helps ensure that both parties understand the amount owed, the repayment dates and how deductions will be made through payroll.
The agreement clearly records the amount advanced, the date it was provided and, where appropriate, the purpose of the loan. This creates a clear audit trail showing that a genuine loan arrangement exists.
The repayment schedule can be tailored to the circumstances, including the amount of each instalment, frequency of deductions and date on which repayments will begin. The agreement can also provide for a final balancing payment where necessary.
The employee expressly agrees in writing to the agreed deductions from pay. This is particularly important where repayments will be collected through payroll rather than by separate payments from the employee.
The agreement explains what happens to any outstanding balance if the employee leaves employment. This can include an agreed deduction from final pay where legally permitted and otherwise arrangements for the employee to repay the remaining balance.
HR and payroll should maintain an accurate record of the original loan, repayments and outstanding balance. The employee should be able to understand how much remains owing and deductions should be clearly shown on payslips where applicable.
Use these best practice actions, recommended timescales and process stages to understand when and how the Loan repayment agreement letter should be used, helping ensure each step is handled consistently and appropriately documented.
Understand the common mistakes to avoid when using this HR template, helping you reduce risk, prevent unnecessary costs and ensure the process is handled correctly.
Yes, provided the deduction is properly authorised. The safest approach is to have a written loan agreement which clearly states the employee's agreement to the specified payroll deductions and repayment schedule.
Where there is no existing contractual provision authorising the deduction, the employee should give prior written agreement or consent. A signed loan repayment agreement provides a clear record of that consent.
It may be possible where the employee has agreed to this and the deduction is otherwise lawful. The agreement should expressly address what happens if employment ends before the loan has been repaid. Employers should not assume that an unspecified final salary deduction is automatically permitted.
A genuine employer loan or advance of wages is treated differently from many other deductions. HMRC guidance confirms that repayments of a genuine documented loan or advance do not reduce National Minimum Wage pay, provided the arrangement meets the relevant requirements.
Not necessarily. An employer can structure a loan according to its own agreed terms, including an interest-free arrangement. If interest, fees or other charges are proposed, the tax, payroll and contractual implications should be considered before the agreement is issued.
HRDocBox templates are designed specifically for UK employers and provide a practical starting point aligned with UK employment law, Acas guidance and real-world HR processes. They are structured for immediate editing rather than requiring an AI-generated document to be checked and rebuilt from scratch.
It gave us a useful reference when checking the final correspondence. It helped keep the communication consistent with the rest of our HR paperwork.
How this content is developed and reviewed
The Loan repayment agreement letter template is developed using a practical HR methodology that considers current UK employment legislation, ACAS guidance, CIPD good practice and the real-world HR process it supports. Templates and supporting information are regularly reviewed and updated, with additional reviews triggered by significant changes to legislation, guidance or established HR practice, helping ensure each document remains practical, relevant and suitable for UK employers.
Darryl Horn, Chartered HR Director
Darryl is a Chartered HR professional with over 25 years' experience in senior HR and employee relations roles.
He has extensive practical experience of managing pay and benefits HR processes and founded hrdocbox to provide businesses with practical, professionally developed HR resources grounded in UK employment law and best practice.
HRDocBox has been creating practical UK HR documents since 2009.
"Darryl provides support and advice with excellent judgement, and has a strong understanding of people, policies and UK employment legislation."
"He is someone I trust; consistent, dependable, and committed to doing things properly."
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