What is really a flex loan?
A flex loan isn't really financing at all – this is an unsecured open credit line. If your application for the loan qualifies, you are able to withdraw cash anytime up to your approved borrowing limit, which can be several hundred to thousands of dollars, depending on the lender and just how much you're borrowing.
In some methods, a flex loan works like a credit card. Flex loans come with a borrowing limit. You will be charged interest for amounts you've borrowed. You need to get a regular monthly statement. You'll have to make a minimum of the absolute minimum payment each month. And you will pay a charge daily, monthly or even any time you use your flex loan.
It's important to comprehend the difference between a flex loan along with a personal line of credit from a bank . A lot of lenders and lending institutions offer lines of credit for individual borrowers and businesses. Rates, fees and repayment terms depend on multiple factors, as well as your credit ratings, or whether your line of credit is secured with collateral or is unsecured. A good credit score and collateral might help qualify borrowers for favorable terms on a line of credit from a bank .
But flex loans are unsecured and could be a choice for those who have rough credit or little to no credit rating. Flex loan lenders may not require a credit check. But because with virtually any type of credit, the more risk the lender assumes, the higher the interest rate you're likely to pay.
Dangers of flex loans
Before we obtain towards the bad news, here is a look at what's attractive about flex loans.
- You can borrow any a few of the funds available for you.
- You might be able to get money quickly.
- You could get flexible payment terms, just like a minimum-payment option.
- If you do not borrow up to your limit immediately, you'll preserve your ability to gain access to more afterwards.
- You might not need good credit to be eligible for a a flex loan.
But those benefits come with some clear dangers.
Sky-high interest
While many states have laws that aim to regulate predatory lending, the cost of short-term loans can be very high. For instance, according to a 2022 report in the National Consumer Law Center, laws in certain states allow certain lenders to charge triple-digit APRs. And if a situation allows a lender to calculate interest every day, the quantity of appeal to you pay on a flex loan could really balloon.
Minimum payments add up to big interest
Like credit cards, flex loans may permit you to make minimum monthly payments – but that usually results in maximum interest. Minimum payments make it difficult to completely repay your balance, because interest continues to accrue.
Flexible borrowing can lead to excessive debt
Flex lenders may tout because you need to apply for the road of credit just once, and you may utilize it repeatedly so long as you haven't reached your limit. Unlike a closed-end installment loan, flex loans might not have a specific end date. It's potentially a recipe for trouble exactly the same way it can be with charge cards – you still borrow and pay interest without substantially lowering the amount you owe.
Because a flex loan is an open credit line that you could borrow against anytime as much as your limit, you might take on more debt than you can handle now or perhaps in the near future, when your financial situation may be different. A closed-end personal bank loan having a fixed amount borrowed and particular repayment term doesn't come with this risk.
Bottom line
Flex loans (which have more that is similar to a line of credit than an installment loan) may give you immediate access to cash, but you could pay a higher price for that convenience. Triple-digit APRs, made up of high rates of interest and fees, aren't uncommon for flex loans. And when there is no end date for the debt, you can keep borrowing and paying high rates indefinitely. Consider the terms of any flex loan offer carefully – you will want to completely understand the pitfalls and charges before you go that route.
If you've healthy credit or collateral, you might be capable of getting better terms and rates of interest with other types of borrowing, like a personal loan, a payday alternative loan (a high level member of a participating federal credit union) or even a credit card.
And before you take a loan, always consider the reason why you desire a loan, just how much you need to borrow and just how you'll repay that amount. If you need cash for a short-term emergency, consider getting a temporary part-time job or side gig, or borrowing from a family member or friend who are able to help you out having a repayment schedule that will be less expensive for you personally than a costly flex loan.
