You might have to take a loan to buy a house or plan a vacation, or to meet medical exigencies or manage your wedding expenses. Be it a home loan or a personal loan, you will have to cough up interest. As a borrower, your aim must be to scout for a loan type and lender that offer a lower interest rate.
Among the types of loans are the fixed loans and flexi loans. Flexi loans are of recent origin and are being increasingly favoured by a large section of borrowers owing to the flexibility in terms of prepayments and the savings in interest costs.
Let’s examine and evaluate the differences between a fixed loan and a flexi loan
The flexi loan definition states that it is a loan with a varying rate of interest. A fixed loan as the name goes, carries a fixed rate on interest all through the loan tenure.
The basic difference between a fixed and a flexi loan is in the interest calculation. In a fixed loan, the interest is fixed at the time of taking a personal loan, which is spread over a number of EMI’s. So, you continue to pay interest on the entire loan amount right from the first EMI to the last EMI.
However, in a Flexi Loan, the interest is calculated for personal loan only on the amount that you’ve utilised from the flexi loan account. Thus, the interest charges are significantly lower when you choose to take a Flexi loan.
Under a flexi loan scheme, as a borrower, you have the flexibility to prepay the loan based on your cash inflows. There is no restriction on the number of prepayments. Hence the question of levy of prepayment charges does not arise. By making prepayments, you can reduce the loan outstanding and save on interest charges as well.
There are restrictions on the quantum of repayments you can make while bound to a fixed loan. Further, you will also be levied prepayment charges.
A Flexi loan account operates as an overdraft account. Just as you make prepayments into the account, you can also withdraw funds (up to an agreed limit) from a flexi loan account. However, in a fixed loan account, you make only payments into the account with no chances of any withdrawals.
With interest rates fluctuating it makes sense to take flexi loans and benefit from the fall in interest rates. A sizeable number of lending institutions are offering the flexi loan facility to borrowers. Whether, you want to take a home loan or a personal loan, a Flexi Loan is the right choice.