The millennial generation faces difficulties in living a fulfilling live and financial management simultaneously. You may desire to own everything to satisfy all your needs; however, you may not have the required funds.
Even if you plan your finances well, keeping crises away is not always possible. As the country moves towards a cashless economy, having idle funds to meet emergencies is not a good idea.
Personal loans are beneficial and an efficient solution to meet all your fund requirements. You may use the money for any purpose, such as home renovation, meet wedding expenses, take a vacation, or consolidate your debt.
Banks, as well as non-banking financial companies (NBFCs), offer such loans. Lenders now offer another type of a personal loan, which is known as the flexible loan. Such loans allow you to draw down and repay the sanctioned amount as per your needs and convenience.
Understanding the difference between a regular and a flexible loan will enable you to make an informed decision. Here are three such differences.
When you avail a regular loan, it must be repaid in equated monthly installments (EMIs). The EMI depends on the borrowed amount, interest rate, and loan tenure. The EMIs must be paid in a timely manner to avoid any trouble. This may not be an appropriate option if you do not have a regular fixed monthly income.
On the other hand, a flexible loan gives you versatility. You may draw down and repay the sanctioned amount as per your requirements. This makes it a convenient option when you do not have a fixed monthly income.
Once the regular loan is disbursed, the interest calculator starts ticking. You must pay the interest on the entire amount irrespective of whether you are using it or not. In case you want to pre-pay the borrowed amount, the lenders may levy prepayment penalties.
In comparison, a flexible loan may be used as and when required within the sanctioned limit. Therefore, you pay interest only on the amount being used only for the period of usage. Furthermore, flexible loans do not entail any prepayment charges.
- Credit score
When you avail and repay regular loans frequently, your credit score changes frequently. In case your EMI installment bounces, it will negatively influence your score. If the bounce occurs multiple times, you may find it difficult to avail of any loan in the future.
A flexible loan overcomes this difficulty. You will pay interest on only the amount you are using. This makes it easier to service the loan in a timely manner ensuring your credit score is not impacted.
Regular loans are recommended if you need to borrow a certain amount for a fixed duration. However, if you have recurring requirements, availing of a flexible facility is advisable. You may convert this loan to a regular term loan during the tenure if required. The amount may then be repaid in regular EMIs.