> Flexible Loan - UK Guide
In a nutshell
A loan that allows flexibility of repayments etc.
Best Loan for
People with erratic incomes or anybody that thinks they might be able to repay their loan early by making overpayments.
Flexible loans tend to work in much the same way as credit cards - so, you are given a loan sum and you can generally use it over and over again (although you'll obviously have to stop when you hit your limit). As these types of loans are a higher risk for lenders, they will tend to be more careful about how much you can borrow - so will probably base their loan amounts on your incomings, outgoings and on a credit score as well. How well you come out of that may well dictate your loan amount - with minimum/maximum limits also varying from lender to lender.
Most flexible loans have no fixed loan period and are treated as ongoing loans.
You can save considerable amounts of interest by taking out a flexible loan. It can also help you make the most of your finances. This type of loan allows you make the repayments you like every month - so if you have a good month you can pay back a lot and if you have a bad month you can cut your payment down. If, as is the aim here, you manage to pay back your loan early, then you'll have saved yourself a lot of cash. And, as the loan is open-ended you can dip in and out of it as you like, so you'll have the security of knowing that you have extra finance at hand for those times you need it.
What to look out for
Flexible loans don't always attract the best interest rates as they are risky products for lenders. You may also find that interest rates are staggered when you apply. So, for example, if you have an impeccably good credit score then you'll get the lowest rates on offer, if your credit score is not so good, then you pay more and if it's bad, then you be charged at the highest available rates.
In addition, flexible loans providers aren't always as flexible as they claim. For example, you will often find a lot of terms and conditions governing how flexible you can actually be in your loan documentation. If you don't keep to these rules then you'll be charged penalty fees and these can be quite expensive. Another problem with flexible loans is the fact that they are flexible. You do need to be extremely disciplined to make these loans work. It can, however, be quite tempting not to pay back as much as you can which will simply cost you more in the long run and negate any savings advantages that you planned for originally. And, the fact that a flexible loan is open ended can be a problem too. It can be tempting to just keep on dipping into your loans fund - even after you've bought and paid for the original loan's purpose. After a while, it's all too easy to see the flexible loan as being your money - when in fact you're actually borrowing it and will have to pay extra to do so. And, if you encounter serious repayment problems then you risk the chance of your lender having to take legal action to recover their loan money - which, in the worst case scenario, could see you lose your home.
You'll get the most flexibility with a flexible loan - but, you could do some research on standard personal loans to find ones that have similar flexible features.