Does Flexible Finance Provide the Best Option?

Flexibility is all about having choices, and when it comes to finance, knowing that you have plenty of options with your borrowing can be ideal. For someone deciding on a new purchase, a balance transfer, or a new mortgage product, sometimes the added flexibility a lender can provide can make a difference for consumers. So, whilst we have become used to flexible working in the last few months and the banks have been flexible with repayment holidays for borrowers, granting is finance flexibility the best option for customers?

Flexible & Deferred Payments

Having the option to delay payments can be a huge help for customers who are facing financial difficulty, as it gives time for circumstances to change and a customer’s affordability to return. This has been especially helpful in the current climate of millions on reduced salaries and since March. Some flexible loans online allow for customers to increase or decrease the amount they want to borrow, similar to a credit card credit limit, or even vary the number of repayments needed to settle the balance so that overpayments are allowed. Generally, these will all be transparent options set out in a credit agreement if a lender can offer them. By comparison, traditional personal loans involve fixed repayments agreed from the loan’s outset which cannot be adjusted including the term, but they do have the option to clear the balance quicker. Customers having the option to make overpayments if they can afford to do, as well as payment holidays if experiencing difficulty, are positives of flexible finance.

Longer Loan Terms, Higher Interest & Fewer Options

Whilst there are many benefits to having flexibility in payments, this can have a knock-on effect with people’s finances. Those who choose to defer payments will be holding onto their loan for longer, meaning it will take longer to pay off the debt. Whilst taking a payment holiday will pause the loan and interest to later resume, those that take out flexible loans with longer than average term lengths from the start could end up paying more interest in the long-term. According to the Money Charity,  UK borrowers in January paid

It can be tempting for some to get the lowest monthly payments possible so that it is more affordable to repay, however, this will mean having a loan for much longer than needed and the total amount repayable will be much higher. Although someone may save money each month, people choosing longer terms won’t save money in the long-term. Although flexible finance options have many pros and cons, you may find that they are hard to come by, especially whilst lenders are tightening their lending criteria during economic uncertainty despite calls from the Bank of England (BoE) to keep lending. It also means that due to fewer flexible loan product available, higher rates of interest can be expected.

As with any form of lending product, those considering flexible finance should take the time to assess the rates and terms involved and match to their circumstances to come to an informed decision.