What is a Flexible Loan?

A flexible loan is a loan structured with a considerable degree of latitude, allowing borrowers to change the terms as needed to address changing circumstances. There are usually some limits on flexible lending, designed to keep borrowers from getting into trouble, and such loans are available through a number of financial institutions. People interested in flexible loans will need to fill out application paperwork, including providing supporting documentation to prove claims about income and other resources.

When people apply for a flexible loan, the loan can be structured in many different ways. Some disburse a single payment but allow people to borrow more money on the loan as long as they have paid back part of the loan. Others give people a ceiling and allow them to take out money when and if they need it, while holding the rest of the loan in reserve. As people use the flexible loan, the repayment terms shift to meet their needs; someone with a five-year loan who repays half and then borrows again, for example, would have the length of the loan reset in response.

People are expected to make regular payments on a flexible loan and can face penalties including late fees if they do not make payments as expected. In addition, the bank can choose to freeze the loan, not offering more money or any further changes to the terms. This usually occurs because the client's financial circumstances have changed and the loan becomes risky, as when people lose their jobs.

One useful application of a flexible loan is in situations where people do not know exactly how much money they will need. People doing remodeling or making an addition, for example, may need access to funds and have an estimate from the contractor to get an idea of the cost, but could run into trouble that causes the expenses to rise. A flexible loan allows them to take out as much money as they need, without incurring additional debt, and there are no penalties for not using the full amount allowed by the loan.

If a bank offers a flexible loan program, people usually need to have good credit to qualify. Interest rates may fluctuate as well, and people may want to ask if there are interest and lending limits. People with poor credit can still access flexible lending opportunities in some cases, but the terms will not be as favorable. For people who can afford to wait, spending six months to a year rebuilding credit can be very beneficial for negotiating better terms on loans.