Borrowing guide - term & flexability

The UK loan term refers to the length of time the borrowing arrangement is granted for. Clearly, you should take this into consideration when making your decision about which loan type to apply for.

For example, if you wish to purchase a car, and you estimated that you could repay the loan in about 4 years. A a personal loan would be more suitable for this purpose than an overdraft, as the term of an overdraft tends to be a year or less.

UK loans terms of 1 year or less are considered short term, and UK loan terms from 1 to 5 years are considered medium term. UK loan terms in excess of 5 years are considered long term loans.

The Flexability of the loan refers to the agreement between you and the lender for periods (during the term) when you are not using the money.

If the loan is flexable, you only pay interest for the periods you are using the money. For example, say you have an overdraft of £500 on your current account. If you overdraw by £220 three days before you get paid and your account is returned to the 'black' on payday, then the bank will only charge you interest on £220 for 3 days.

If you had taken out £500 personal loan to cover this type of eventuality, you'd be charged £500 for the entire term of the loan - i.e. the loan is inflexible.

However, you tend to pay higher interest rates for flexable loans, so you would not opt for flexability unless you needed it.

For example, if you wished to take out a loan to buy a car, you probably would not need flexability, as you would use all the money at the begenning of the loan period, and siply pay it back as per the agreement.

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