Flexi loan vs Term Loan: Which One Should You Take For Travel

Your ability to predict travel costs will determine whether you choose a Flexi loan vs a term loan. Ganesh and his family are looking forward to their yearly trip to Kerala at the end of the year. They are eager to enjoy a festive Christmas and a prosperous New Year in God’s Own Country. The duration of the trip, the schedule, the activities, etc., have all been decided. The only decision would be whether to use a fintech flexi loan vs a term loan from a bank to pay for the holiday. It’s a problem that several individuals experience.

Describe a Term Loan. 

The period and EMI of a term loan are both fixed. Your bank account receives a lump sum disbursement of the total loan amount. Regardless of how the loan is used, interest is accrued on the total amount. Both the capital and the interest are included in the EMI.

Understanding Secured Loans

As you can see, this loan is described as secure. The word “secured” is of English origin. The term “secured loan” refers to a loan that is safe because the word “secured” signifies “secure.” But for whom is it safe? Such a loan is secure for those offering loans being banks or NBFCs.

A loan is when a bank or NBFC is promised a piece of property worth the loan amount before granting it. When a secured loan customer cannot pay back the loan for any reason, the lending bank or NBFC business recovers the loaned funds by transferring the mortgaged real estate secured to it.

The unique feature of secured loans is that they have a longer term. Thus, you will pay the secured amount over a longer period. A secured loan is typically a mortgage, auto, jewellery, or other loan secured by real estate.

A mortgage does not secure a secured loan.

This kind of loan is a great choice for small and medium-sized business owners. Thus, no property is mortgaged to obtain such a loan. Only the activity of a bank account or Form 16 of the ITR of a financial year file is used to get loans without pledging.

Business loans or personal loans make up the majority of unsecured loans. Small business owners can benefit from a business loan without mortgaging anything because they do not have enough property to boost their operations. A person can use a business loan to develop their business as needed without having to put anything up as collateral.

What is a Flexi Loan?

In a flexi loan, a bank, NBFC, or fintech imposes a predetermined cap (say Rs 1 lakh). The sanctioned limit functions similarly to an overdraft or credit line. Flexi loans are also called overdrafts. The Flexi loan is a financial facility offered based on the customer’s bank account history. The borrower may utilise any amount from an authorised credit line (loan account). The amount taken or used is subject to a monthly interest fee for the borrower.

Let’s say Ganesh obtains a flexi loan from a fintech company for Rs 1 lakh with a 1-year term and an 11% annual interest rate. The interest-only EMI for the loan comes to Rs 917 per month when he withdraws the full amount. Please know that you will not include the major component in the EMI. After the loan term, typically one year, he will be required to pay back the remaining principal. Based on the quantity of money available, he may also choose to make a partial prepayment or a complete payback of the outstanding principal at any time during the year.

Flexi loan vs term loan comparison

In the last part, we discussed the characteristics of a Flexi loan vs a term loan. Let’s now evaluate both of them.

Obtaining a term loan on the road

You will get a lump sum payment of a specified amount from a term loan into your bank account.

The length of the loan and the EMI are set.

Since the loan institution will reveal the payback schedule, you could plan your EMI repayment. Prepayment charges are possible.

Travelling while using a flexi loan

• A Flexi loan will give you access to a credit line with a predetermined sanctioned maximum.
• You may withdraw as much as you want from the authorised sum anytime and as often as you like.
• Only the amount and duration used will be subject to interest payments.
• There are no fees associated with partial or full principal prepayments.

Choose a term loan over a flexible loan.

• The term loan has a set repayment period, and the EMI is fixed during that time. Therefore, you can opt for a term loan if you know the trip’s precise cost and would rather pay a fixed EMI each month.

With a flexi loan, you can deduct any amount from the sanctioned limit as often as possible. Only the amount that is withdrawn will be subject to interest. Payment terms are also adaptable. Therefore, choosing a flexible loan makes more sense when you don’t know the cost of your holiday and if you wish to return the loan amount whenever you have extra cash.

Which Loan—Flexi loan vs term loan—is Preferable?

Flexi loan vs term loan is covered in detail in this article. As per their different terms, both loans are better. Flexi loans are a better choice for people who deal with money frequently. A secured term loan is preferable for people who need to purchase a home or a vehicle. 

Conclusion

You can pick a Flexi loan vs a term loan depending on how well you know the exact cost of your trip. Your decision will also depend on whether you wish to pay back the loan in lump sums or as and when you have extra cash. After deciding on the loan kind, it’s time to appreciate your trip fully. Make sure you bring back lifetime-lasting, joyful experiences. If you want more detailed information regarding Flexi loan vs term loan, you must visit Piramal Finance now.