What are flexible loans?

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By Sarah Watts
Updated on Thursday 17 August 2023

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Most loans have stringent terms and conditions attached to them where you’ll be expected to pay a set amount each month, without fail, for the duration of the loan.

And, if you don’t abide by these strict terms and you miss one payment or more, not only could your debt easily spiral out of control, but you could also damage your credit rating, and significantly so if a default is recorded.

If you want to borrow money but you are unsure what the future may hold - for example, you’re self-employed with a fluctuating income or work in an industry where redundancies are high - then a flexible loan (also known as a flexi loan) could be a great flexible borrowing solution for you.

What is a flexible loan?

Unlike a typical standard personal loan, a flexible personal loan may allow you to:

Pay extra or less

With some flexi loans, you can choose and change the amount you pay back to suit your financial circumstances and enjoy flexible repayments. So if you’re completely brassic one month, you can opt to pay back a comfortable, smaller amount. Or, if you’re having a good month with lots of cash to spare, you can choose to pay a larger sum - thus reducing your debt and the interest accruing on it.

Take a payment holiday

Some flexi loans allow you to take short payment breaks when money is tight, without penalising you - these breaks are typically up to 2 months, but they can be longer. When you take a payment holiday, interest will still be added to your loan but a payment break won’t affect your credit score and you won’t be penalised for missing a payment with a late payment fee.

Borrow as you go

Instead of borrowing a fixed amount at the start, you are able to increase the amount you borrow and withdraw extra money (borrow more) as and when you need to. There will be a set limit on the amount you can borrow that you have the option to use or not use.

How does a flexible loan work?

  • When you take out a flexible loan, a limit will be set for how much you can borrow.
  • You can borrow as little or as much as you like, up to that set limit.
  • Flexi loans work by transferring money from your loan amount to your bank account.
  • You can pay back as much or as little as you like, or with some loans, take a short payment holiday.
  • You are only charged interest on the amount you borrow, not the full loan amount [limit] unless, of course, you utilise the full borrowing limit.

Will a flexible loan affect my credit rating?

Flexible loans will show up on your credit report although they may not be marked as being “flexible”.

If a flexi loan is within your credit utilisation, it will not affect your credit score per se. BUT, just like any other type of loan, if you do not comply with the terms of your credit agreement, then this could be recorded on your credit file, visible to other lenders and impact your credit rating.

For example, if your credit agreement states you can only take a payment holiday for a maximum of two months and you fail to make a repayment on the third month, you will then be in breach of the terms of your credit agreement and this could be noted on your credit report.

There will also be a fixed term (number of years) in which you can pay back the loan and again, if you exceed this term without prior agreement from your lender, then this could damage your credit rating.

How to get the best flexible loan

  • Consider the benefits: different flexi loans have different benefits and will not necessarily include all of the benefits we have outlined above. Some will include payment holidays and others won’t but may instead be flexible on the amount you can borrow. You should therefore consider what benefits you want or need the most i.e. flexible repayments or flexible borrowing.
  • Check your credit report: before applying for any type of loan, make sure you check your credit files are in order and accurately reflect your borrowing status. As you will not know which credit reference agency a lender uses - many lenders use more than one and there are three main agencies in the UK - you should obtain and check a multi-agency report for all three of the UK’s main credit reference agencies.
  • Assess the terms and conditions: before applying, check you meet a lender’s flexible loan eligibility criteria. If you officially apply for a loan and your application is declined, this can often be recorded on your credit files (if a lender conducts a hard credit check) and this negative record can make getting a loan much more difficult when you apply again.
  • Shop around and compare quotes: you should thoroughly compare deals online by getting quotes from different lenders and comparison sites and comparing the benefits, costs, terms and interest rates. Flexible loans are not as common as other types of loans so there will not be as much choice as there is for standard loans. If you’re struggling for time, you could instruct a credit broker to find you a good deal instead.

Can I get a flexible loan with a bad credit rating?

It may be possible but when you have bad credit, getting a loan will prove difficult - period.

If you do get offered flexible borrowing, the terms will usually be less favourable than those offered to borrowers with a good credit history. This usually means the interest rates (APR) will usually be much higher and the loan more expensive/less affordable.

If money is tight and you need to borrow money, flexible borrowing can help you manage cash flow better, especially if you have an option for payment holidays and/or flexible repayments.

You might want to read: Guarantor loans explained

What lenders look at

As outlined above, lenders will check your credit record(s) to:

  • See if you’re a responsible borrower or conversely, a credit risk
  • See if you’ve had any recent loan applications declined
  • See how many times you’ve applied to borrow money
  • Assess your credit utilisation
  • Check if you’re registered on the Electoral Roll

Lenders will also look at:

  • Your income and expenditure
  • Your employment status
  • If have any assets (i.e. own a property)
  • Your age
  • Bank account statements and/or wage slips

And, taking all of the above into account, a lender will then consider:

  • Whether to offer you a loan
  • How much to lend you
  • What the term of the loan will be (how many years)
  • What the interest rate (APR) will be
  • If they will offer you payment holidays and how long these will be for
  • Repayment and/or borrowing flexibility

Read more: Loan eligibility: everything you need to know

Do flexible loans work out more expensive?

Not necessarily, no. Especially if you pay back larger amounts and reduce your borrowing liability sooner meaning you will pay less interest as a result.

However, the interest rates could be higher than those offered on standard personal loans as there is a much more limited choice for these types of loans.

Whilst you do not have to stick to a rigid flexible loan installment plan, you should make sure you can afford this type of loan and do not rely on its flexible terms too heavily.

Whilst a flexible loan isn’t quite as scary or strict as the terms of a standard loan, you should never borrow more than money than you can afford to repay as you will quickly and easily run up unaffordable debt and damage your credit rating.

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