If you come into some money unexpectedly, there's nothing more satisfying than making a big fat overpayment on debts such as a personal loan - or even paying it off in full.
Likewise, if your income is irregular the ability to pay back more as and when you want to can put a large dent in the total interest owed. Unfortunately that option begins to look much less attractive when lenders charge a penalty for even the smallest overpayment beyond your fixed monthly amount. So what's the solution?
A more flexible loan, where overpayments DON'T incur penalties, could be the answer, provided the loan itself fits your finances. We show you how to get value for money from your flexible loan.
What is a flexible personal loan?
As with normal personal loans, you're able to borrow a set amount over an agreed period, almost always at a fixed rate of interest. The amount you repay each month will reflect the loan total plus interest divided by the term of the loan.
Added to that, a flexible loan gives you greater control of your repayments going forward - mainly the ability to overpay or repay the full balance early. Its "flexible" bolt-ons may include some or all of the following features:
Repaying it in your own time
Most flexible loan companies won't impose early repayment charges for overpayments, or even paying off the entire amount early, whereas a fixed loan is likely to inflict fees for this.
This can hugely reduce the total interest you'll pay back overall, as the interest due on each of your future payments is calculated using the total balance of the loan remaining.
A flexible loan still specifies a minimum payment you'll need to make each month, so you must make sure it is affordable, but you'll actually be able to pay anything between this amount and the total outstanding balance. This can be especially useful if the amount you earn each month varies greatly, for example if you earn commission-based wages.
Some loans come with the option of a repayment holiday, which allows you to request a break from paying anything back for a set period. As tempting as this may seem, the lender will still continue to charge interest on the loan, so this should be considered with caution and only as a short term emergency measure.
With a loan for a one-off purchase, you know more or less how much you need to borrow meaning you'll be able pay back the same sum each month and budget accordingly. But if an unexpected cost means you need to borrow more, you could find all doors are shut because of your existing loan.
Flexible loans offer two ways to get around this. Some lenders state that they will consider your application to bolt a second loan onto the first, rather than ruling it out by default.
Others may simply offer flexi loans that allow you to borrow what you need. Several UK banks offer flexible loans linked to your current account, which can be run through internet banking. These allow you to pick a maximum loan amount you might need in total, but only transfer funds to your current account as and when you need them. Interest will usually only be charged on the borrowing you draw down.
In this sense it's not unlike an overdraft or credit card, but can often have a much higher credit limit. If you do choose a flexi loan, be careful that you work out exactly how you'll pay it off. If you just stick to the minimum payments, it will take a long time to repay the loan and you'll shell out the maximum interest.
Compare flexible loans
Once you've worked out what you need, look into which loans have the terms and flexibility that suits you. Since flexible loans often charge higher rates than their fixed counterparts, it's even more important to find the best rate you can.
Check the total cost of each loan (balance + interest) and the would-be size of your monthly repayments, making sure each one fits into your budget. It's also worth checking for any fees the lender charges, such as an arrangement fee. Always take these fees into account when you work out the total loan cost.
Once you've found the most suitable lenders, compare loans using our flexi loan comparison to get the best value. Assume that you will only pay the minimum monthly amount when you compare flexible loans so that you don't get stung if you can't overpay later on.
Before you apply, you should also check whatever alternative options may be available. A standard loan may yet prove cheaper if you'd save more paying its much lower interest than you'd incur in penalties for early/overpayment.
Finally, make sure to read the eligibility criteria plus any terms and conditions such as your age, minimum income and credit rating.
Most flexible loans are unsecured, meaning they're based on the lender's opinion of your ability to pay them back rather than by using your home as collateral. However, some flexible loans for bad credit are available where you'll need to back up your application with a guarantor.