Deciding Between a Term Loan and a Flexi Loan for Your Upcoming Getaway: Key Factors to Consider

Everyday life can be stressful. The constant worry and need to shoulder all responsibilities may pull you down. Amidst all this, we need a break and rejuvenate. It’s time you picked your favourite destination, packed your bags, and departed on the much-awaited journey!

But wait! What about the travelling costs, accommodation bookings, and other additional expenses? No matter where you go, on a safari, to a coastal village, or riding a camel in the Sahara, you need the right financial plan to make any of it happen. Getting a short term loan can be a great option in such a scenario. 

However, with the numerous options available, it might be difficult to select a loan plan. The first step is to understand the different types of personal loans, that is, a flexi and a term loan.

Term Loan

Term loans are a traditional form of credit. With a term loan, you can borrow the required amount as a single lump sum for a fixed tenure and a set interest rate. The monthly instalments consist of the principal and interest components. 

Let us assume you need to borrow ₹2 Lakhs for your trip to Goa. With a term loan, you can borrow the required amount at fixed interest rates, for example, in this case, 12%. The tenure will also be set beforehand, which, let us assume, is five years for the said loan. 

In this case, the monthly instalment you are liable to pay till the maturity of your loan amounts to about ₹4,449. 

Flexi Loan

A flexi loan combines a traditional term loan with an overdraft facility. You can get a pre-approved loan amount that is then disbursed to a special account. As per your requirements, you can withdraw money from this account and use it to meet your needs. Furthermore, you are charged interest only on the amount that you utilise.

Let us understand this better with an example. Suppose you are looking to borrow some money for your Goa trip. The repayment tenure and interest rate remain the same, as mentioned above. However, the lender sanctions ₹5 Lakhs worth of loan and disburses it to a separate account. You can now borrow as much money as you require from this pool and use it for your trip. For example, let’s say you used just ₹2 Lakhs of the entire sanctioned amount, interest will be charged only on that amount. 

Additionally, if you find yourself in need of more money, you can withdraw more from the specified account. A flexi loan is available in two options, a flexi term loan and a flexi hybrid loan. The difference between the two is quite simple.

In a flexi loan, the EMIs payable consist of the principal and the interest components. Meanwhile, the hybrid option allows you to pay only the interest as your instalment for the initial part of your tenure. The principal component is added to your EMIs in the latter part of your repayment tenure. 

How Do You Decide?

Now that we have understood the difference between both variants, it is time to decide. Here are the features of both plans in direct comparison to help you understand the pros and cons of both. 

If you like to follow a set plan and know the exact cost of your trip, a traditional term loan might be just what you need. On the other hand, if you are an impromptu traveller, who loves to improvise on the go, a flexi term loan or a flexi hybrid loan can be of help. 

When deciding on a loan plan, it is essential to take into account your financial liabilities, the requirement and your travelling style. Take an informed decision by considering these factors along with other aspects like the amount you look to borrow, the applicable interest rate, and the preferred tenure. 

A good way to ensure that you make the right choice is to use EMI and eligibility calculators for both loan variants. These tools can help you check the amount you can borrow and compute the monthly instalments you will be liable to pay for each. Alongside these, consider the additional costs that come with the processing of a loan to calculate the aggregate cost. Now that you are armed with this knowledge, get started by planning the trip and your loan. Use these funds and go on that well-deserved break!