Do You Know the Difference Between a Flexi Personal Loan & a Term Loan?

Flexible loans and term loans are both forms of finance that can prove helpful to tide you over a financial need in life or business. However, these instruments have different features and serve other purposes for available people. This article discusses the differences between a flexi personal loan and a term loan based on critical parameters. Let us take a look at the definition first –

What is a Flexi loan?

Flexi loans can be availed from banks, NBFCs or FinTech companies. The lender sanctions a limit that works like a credit line or overdraft facility in a flexible personal loan. The borrower may use all or a part of the approved amount. They will be charged a monthly interest only for the amount withdrawn/utilized. The borrower may withdraw multiple times from the credit line as per their requirement.

What is a Term loan?

A term loan is a standard personal loan wherein the entire loan amount is disbursed to the borrower’s account. The interest is charged on the whole loan amount, irrespective of how much is used. At the end of the term, the borrower is expected to repay the principal amount with the applicable interest. Term loans may be availed of from banks, NBFCs or FinTech companies.

Comparison between a Term loan & Flexi loan

Even though flexi personal loans and term loans fall under the same category of financial instruments – there are many differences between the two. Here’s a look at some of the nuances and features of these two sources of finance that set them apart –

  1. Nature of the Borrowing – In a term loan, the loan is given for a period with an agreed-upon repayment schedule with a fixed interest rate. Flexi personal loans allow you to withdraw as much as you need within a sanctioned limit; the repayment schedule is also flexible. In the absence of a predefined schedule, borrowers can repay a flexi loan whenever they have extra cash.
  2. Purpose of the Loan – Term loans are usually sought by small business owners for meeting working capital requirements or other business needs. Flexi loans may be availed for various purposes, ranging from business finance to organizing a wedding, a family vacation, or paying medical bills.
  3. Interest Payable – The borrower is liable to pay interest on the entire loan amount in a term loan. The interest rate is fixed, and it does not matter how much of the loan amount you actually use. A flexible loan allows you to pay interest only on what you have withdrawn and not on the total sanctioned amount.
  4. Utilization Flexibility – In a flexible personal loan, the borrower has the flexibility to utilize only a part of the amount sanctioned, and the interest is also calculated only on the amount used by the borrower. On the other hand, borrowers of term loans must repay the entire amount in EMIs, irrespective of how much is used.
  5. EMI Amount – EMIs of term loans are usually higher than the EMIs on flexible personal loans. The reason is that borrowers must repay the entire loan amount with interest in case of a term loan. While in the case of a flexi loan, borrowers repay only what they use. It reduces the EMI amount.

Flexi personal loans are an easy-to-avail source of finance. Once your loan amount is approved, you can withdraw as and when required to fulfil your financial needs. Looking at a comparison of term and flexi loans is essential before deciding which source of finance is best for you. Log on to our website or follow our blog to know more about the different financial instruments in the Indian loan market.

Author bio – Tanvi Kaushik specializes in Content Marketing and works with the Digital Team at KreditBee – India’s fastest personal loan platform where self-employed and salaried professionals can easily avail of personal loans in just a few minutes when in need of quick funds. Tanvi writes to-the-point articles on personal finance and budgeting which are truly appreciated by her readers. She is committed to making money matters easy to understand even for the layman. Her commitment to her work doesn’t stop her from pursuing her hobbies of hiking,