The assignment of a fifth of the salary or pension is a very flexible form of personal loan and, therefore, increasingly used by those who need funding to meet certain expenses. This product is aimed at employees, employed in the public or private sector, as well as pensioners.
The loan is personal and not finalized
Meaning that it is not tied to a specific use . It is therefore a solution suitable for those who need additional liquidity to meet cash requirements of various kinds.
The maximum duration cannot exceed ten years (120 monthly installments). The maximum amount that can be paid, on the contrary, has no limits, but varies in relation to the monthly income received by the debtor, that is in proportion to his salary or social security allowance.
As can be deduced from the word itself, in the assignment of the fifth the limit is fixed at 20% of the net revenues . This threshold is equivalent to the maximum installment, which therefore includes both the principal amount to be repaid to the financial intermediary and interest (at a fixed rate).
Assuming the case of a subject who receives a net salary of 1,500 euros a month
The maximum installment that can be granted is 300 euros. The sum will be withdrawn each month from the payslip, as it will be directly the employer or the social security institution to withhold the quota and to pay it to the creditor.
As a result of this mechanism, which has a long history having been introduced for the first time in 1950, the bank / finance is in theory safe from the risk of debtor insolvency , since the installment is paid directly to the source. The sale of the fifth is thus a useful tool also for those who would find it difficult to obtain other forms of loan, perhaps because they have been reported to SIC as bad payers. As recognized by the Bank of Italy , the sale of the fifth therefore plays an important role in terms of financial inclusion, in favor of customers “that could otherwise be excluded from the credit circuit”.
However, there are some cases in which the “certainties” can fail. This is why insurance companies come into play, whose role is to protect the parties involved (debtor and creditor) from possible future risks capable of calling into question the successful repayment.
As already happens for mortgages and other personal loans, it should be noted immediately that there are different types of insurance policies. Not all of them are mandatory.
Article 54 of Presidential Decree no. 180/1950 establishes that the assignments of the fifth “must have the guarantee of life insurance and against employment risks “.
According to the law, therefore, the only compulsory insurance coverage for employees is that relating to the risk of premature death and loss of a job . In the case of pensioners, the obligation only concerns the risk of death.
On this point, it is common practice for banks and financial companies that provide the loan to propose the “recommended” insurance policies to the client. The contracts cannot be issued directly by the same body, as the current legislation prohibits intermediaries from operating in an “obvious” conflict of interest, ie being both the placement agent and the beneficiary of the contract. However, it is possible for financial institutions to offer policies issued by affiliated companies , or otherwise linked to the same business group.
In this case, the customer is not obliged to accept the proposed solution. The bank / financial is required by law to accept any insurance policies already held by the customer, stipulated on its own account.
Naturally it is always advisable to read up as accurately as possible
On the characteristics of the policy offered , in terms of premium (single or periodic), ancillary charges , maximum amounts , renewals , exclusions from the guarantee and claims for compensation . This is the only way to compare convenience with other similar products available on the market.
It is also essential for employees to verify the nature of the policy against the risk of job loss. The solutions on the market can be divided into two macro-categories: those for the protection of real credit and those for the protection of possible future economic losses .
The mechanism is apparently identical: if the debtor loses his job in an unforeseeable and unjustified manner (dismissal without just cause, bankruptcy), the company will pay the missing loan installments to the creditor bank. But there is a big difference.
In credit risk policies, the lender maintains the right of subrogation of the company towards the debtor. This means that the insurance, after having settled the claim, can ask the insured for reimbursement of the sums paid.
In the “pecuniary loss” policies , on the other hand, the protection for the debtor is greater, as the company will liquidate the amounts owed to the creditor until the insured debtor finds a new job. In any case, the claim will remain the responsibility of the company and the insured / beneficiary will not have to respond in any way.
For these regions it is necessary that when signing a policy combined with a salary-backed salary, workers pay close attention to the classification under consideration. Furthermore, as required by the guidelines of the Bank of Italy and of the IVASS, intermediaries must give “adequate evidence of the existence of the right of subrogation and its effects”, but sometimes the behavior of operators may be different.
The fact remains that in the event of dismissal for just cause or voluntary resignation of the worker, the right to insurance reimbursement ceases.
Finally, we remind you that in the event of early repayment of the loans, in accordance with the provisions of the individual salary-backed contracts, the debtor is entitled to a refund of the portion of the “unused” insurance premium, since it refers to the amortization period still remaining.
Furthermore, the cost of insurance coverage linked to the loan must be included in the APR of the salary assignment.