Choosing Fixed or Flexible Personal Loans
By Michael Strauss
When shopping around for a personal loan, the first thing most of us will look at is the interest rate or APR - and the lower this figure is, the better. That's not the only thing we need to take into account though, as we also need to decide whether to go for fixed or flexible loan.
Fixed Loans
With a fixed loan, you know exactly how much you'll have to repay each month, and exactly how long it will take to clear the debt. Everything will be set out in the credit agreement you sign, and if you want to make any variations to this agreement such as paying off the loan early, you'll be charged a fee to do so. Usually this fee will be limited to one month's worth of interest charges, but in some cases a flat fee or percentage of the outstanding balance will be charged too, and this can rapidly get expensive.
Flexible Loans
As the name suggests, a flexible loan offers you more leeway in how you meet your repayments. You'll normally be able to repay your loan in full before the end of the schedule without being charged anything, and you might also be able to pay a little more than your usual amount if you have extra funds one month.
There is often the facility to take 'payment holidays' where you can skip a one or two payments a year, or delay starting your repayments for a few months at the start of the loan. Note however that with both of these options, interest will still be charged during the payment holiday, and it will of course take longer to clear the debt.
Which to Choose?
If you think you'll be able to take advantage of the ability to repay your loan early without a fee being charged, or you think that you might benefit from taking payment holidays, then a flexible loan is certainly worth considering, However, the cost of flexibility is usually a higher APR making the loan more expensive overall.
Fixed loans have their advantages too: it's easier to budget when you know exactly what your repayments will be, and you can set up a monthly automatic payment at your bank to be sure you won't miss a payment. Fixed loans will also tend to have a lower APR, and so if you have no need of flexibility they are the best choice.
As always though, it pays to compare personal loan rates from different providers, as APRs can vary widely and you may even find a flexible loan at lower rate than most fixed ones!
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