Term Loan vs. Flexi Loan – What You Need to Know

A loan can help you in multiple ways. Want to buy a home? Or the car of your dreams? You have a personal or home loan. Need funds for your startup? You have a business loan to take care of it. There are multiple types of loans offered by financial institutions that can take care of your expenses and keep you worry-free. However, it is important to understand the type of loan you require.

Loan Options Comparison

Let’s understand the difference between term loans and flexi loans by focusing on the key comparisons: 

1. Nature of the Loan

• What is a Flexi Loan?

A flexi loan is a kind of personal loan that allows the borrower to take funds up to a certain limit in the form of an overdraft or line of credit. Under this type of loan, the borrower is charged an interest rate only on the amount that is withdrawn from the sanctioned amount and not on the whole amount.

• What is a Term Loan?

A term loan is a kind of loan where the borrower takes funds from a lender for a certain amount of time, usually ranging between five to twenty years. Under this type of loan, the borrower is liable to pay an interest rate on the whole amount. 

2. Purpose of the Loan

• Which Loan, a Term Loan or a Flexible Loan, is Preferable?

To understand which type of loan is preferable, you first need to understand their purposes;

Flexi Loan Purpose: 

Flexi loans are designed to serve versatile purposes as it allows the borrower to get a certain loan amount sanctioned and withdraw only the funds that is required. This type of loan is usually taken when the applicant is unsure about their financial future.  For instance, if you take a flexi loan of Rs. 10 lakhs, you can withdraw Rs. 4 lakh for a car and later Rs. 1 lakh for a vacation, paying interest only on the withdrawn amount.

Term Loan Purpose:

A term loan is often taken to meet an ongoing financial need as opposed to a flexible loan. Under this type of loan, the borrower has to repay the whole amount with fixed monthly instalments. As the name suggests, a term loan is fixed for a tenure like 5 years or 10 years and the borrower has to repay the amount within the tenure. 

• What is a Flexi Loan vs a Term Loan?

A Flexi loan is a type of loan taken to meet a specific need like purchasing a car, wedding, vacation, house etc whereas a term loan is taken for an ongoing expense like EMIs etc.

• Which Loan is Better – a Flexi Loan or a Term Loan?

Both types of loans provide additional financing to the borrower and depending on personal requirements, a borrower can understand which loan is better. For instance, a term loan is better for your ongoing expenses while a flexi loan is better for meeting the financial needs of a specific expense.

3. Interest Charged

Another crucial factor in comparing both types of loans is evaluating the interest charged. Here’s an insight to help you make an informed decision:

• Interest Charged on Term Loan: 

Under a term loan, the borrower has the liability to pay interest rate on the whole amount. The interest rate is fixed by the lender and has to be paid through monthly instalments, in most cases. The interest charged on a term loan varies based on factors like; the borrower’s credit score, the tenure of the loan and economic factors including RBI’s policies. 

• Interest Charged on Flexi Loan: 

A flexi loan works like a borrowed fund for the borrower who can take out the amount as and when needed. Under this type of loan, the borrower is liable to pay an interest rate only on the amount withdrawn from the sanctioned fund. Just like a term loan, the interest rate charged on a flexi loan varies due to similar factors. 

4. Option to Pay Only Interest as EMIs

Under a flexi loan, the borrower has the option to pay only interest as EMI for the initial tenure by offering to prepay the principal amount either wholly or partially. On the other hand, under a term loan, lenders, in most cases, do not provide the option to pay only interest as EMIs. 

5. EMI Amount

The EMI amount on a term loan or flexi loan is subjective to the lender you choose. However, in most cases, EMI on a term loan is higher than a flexi loan. Understanding the EMI difference between a term personal loan and a flexi business loan can help in selecting the right option. Below is a comparison:

Loan Type	EMI Amount	Outstanding Loan Amount	Interest Rate	EMI Start Date	EMI End Date
Term Loan (5 years)	Rs. 23,922	Rs. 7,00,000	15%	1st February 2017	1st March 2022
Flexi Loan (1st year)	Rs. 5,000	Rs. 7,00,000	15%	1st February 2020	1st May 2021
Flexi Loan (2nd year onwards)	Rs. 15,000	Rs. 7,00,000	15%	1st March 2021	1st May 2024

Use a personal loan EMI calculator, term loan or flexi loan calculator to estimate your monthly repayments, interest costs and total loan tenure before applying for an instant personal loan or any other type of loan.

6. Accessibility

Possibly the biggest challenge borrowers face is; accessibility to loan amounts. You must have come across situations where a financial institution is offering flashy loan policies but comes with a wide list of eligibility criteria making it practically impossible to get the loan sanctioned.

Now, to understand the accessibility of term loans and flexi loans, let’s take a look at the eligibility criteria and document requirements.

Term Loan

• Eligibility Criteria: An applicant looking for a term loan must be an Indian citizen, above the age of 24 years with an impressive Credit Score.
• Documents Required: An applicant must provide KYC documentation, including an Aadhaar, PAN card, passport, utility bills (electricity, telephone, or water), or voter ID (identity, address, and age proofs) along with documents of business ownership and financial statement. 

Flexi Loan

• Eligibility Criteria: An applicant looking for a term loan must be an Indian citizen, above the age of 18 years with an impressive Credit Score.
• Documents Required: For a flexi loan, document requirements are mostly minimal like Identity proof, bank account statements etc.  

Note– This is a general list of eligibility criteria and document requirements that might vary depending on the lender. 

Benefits of Term Loans

• Predictable Payments: Fixed monthly EMIs simplify budgeting. 
• Lower Interest Rates: Compared to short-term alternatives, business loan interest for term loans is often lower. 
• Long-Term Financing: Ideal for major investments, easing immediate financial strain. 
• Flexibility: Funds can be used for expansion, purchasing equipment or working capital. 
• Build Credit: Timely repayment improves credit history, helping with future business loan eligibility. 

A term business unsecured loan is a good option for companies without collateral, while secured loans may have lower business loan interest. 

Benefits of Flexi Loans

• Liquidity: Withdraw funds multiple times up to your approved limit and pay interest only on the utilised amount. 
• Easy Management: Withdraw and repay funds online, similar to a savings account. 
• Low EMIs: EMIs are based on the withdrawn amount, lowering interest payments compared to fixed repayment plans.  
• Zero Prepayment Charges: Repay the loan anytime without extra costs. 
• Online Application and Quick Disbursal: Check personal loan eligibility, apply online and get approval in a few days. 

For those needing financial flexibility, a flexi business loan or online business loan is a convenient option. 

Which Loan Option is Preferable?

The choice between a term loan and flexi loan depends on financial needs and repayment capacity. 

• For Predictable Expenses: Small business term loans are ideal for funding fixed expenses like purchasing equipment or business expansion. It ensures structured repayments with a fixed EMI. 
• For Cash Flow Flexibility: Businesses with irregular income may find a flexi business loan more suitable. It allows withdrawals as needed while paying interest only on the used amount. 
• For Short-Term Needs: A quick business loan such as flexi loans offers fast access to funds, but the tenure may be shorter. This makes repayment schedules tighter. 
• For Large Investments: A 10 year business loan or 5 year business loan in the form of a term loan helps businesses manage long-term projects with structured repayments. 

Comparing business loan rates and using a loan eligibility calculator can help in choosing the best business loan for your needs. 

Summing Up 

A term loan and flexi loan are designed to provide additional financing. If you have reached till here, you must have understood that both the loans serve varying needs and with an understanding of the basics, you are all ready to make an informed choice. 

To access a seamless and quick borrowing experience, you can head to Lendingkart. At Lendingkart, you get business loans for varying requirements of your business loan. 

FAQs

1. What is a Term Loan?

A term loan is a kind of loan where the borrower takes funds from a lender for a certain amount of time, usually ranging between five to twenty years. Under this type of loan, the borrower is liable to pay an interest rate on the whole amount. 

2. What is a Flexi Loan?

A flexi loan is a personal loan that allows the borrower to withdraw funds up to a certain limit in the form of an overdraft or line of credit. Under this type of loan, the borrower is charged interest only on the amount withdrawn from the sanctioned amount and not on the whole amount.

3. How is a Term Loan different from a Flexi loan?

A term loan differs from a flexi loan in multiple aspects including; the interest charged, the tenure, the repayment method and the purpose. 

4. Which is better, a Term loan or Flexi Loan?

A Term loan and a Flexi loan have different features for varying requirements of the borrower. To decide which loan is better, you must first understand their purposes. For instance- A term loan is usually taken to meet ongoing financial needs like EMIs or small business needs and a flexi loan is taken to take care of a specific purpose like purchasing a car or wedding expenses.