Flexi Loans vs. Term Loans: Which One Lowers Your EMI?

When it comes to borrowing, choosing the right loan type is crucial to managing your finances effectively. Among the most common options are flexi loans and term loans. Both serve different financial needs and offer distinct advantages. However, if your primary concern is reducing your Equated Monthly Instalments (EMIs), it’s essential to understand the differences between the two. Here’s a detailed comparison of flexi loans vs term loans to help you decide which suits your requirements best.

What is a Flexi Loan?

A flexi loan is a versatile financial product that provides borrowers with a pre-approved credit limit. You can withdraw funds as needed and repay them in parts or in full, based on your cash flow. This type of loan is particularly beneficial for individuals with fluctuating income or uncertain financial needs. With a flexi loan, you pay interest only on the amount utilised, not the entire approved limit, which can significantly lower your EMIs.

What is a Term Loan?

A term loan is a traditional loan in which the borrower receives a lump sum upfront and repays it in fixed instalments over a specified tenure. Term loans are ideal for planned expenses, such as buying a house or funding a business expansion, where the total amount required is known in advance. The EMIs in term loans include principal and interest, calculated based on the entire loan amount and tenure.

Flexi Loans vs. Term Loans: EMI Comparison

1. Interest Calculation: Flexi loans allow you to pay interest only on the amount withdrawn, not the approved limit. This feature can lower your monthly payments, especially if you do not use the entire credit limit. In contrast, term loans charge interest on the loan amount from the start, leading to higher EMIs.

2. Repayment Flexibility: Flexi loans offer the flexibility to repay the borrowed amount at your convenience. You can pay only the interest component initially and clear the principal later, which can lower your EMIs during financially tight periods. Term loans, however, come with fixed monthly EMIs that include interest and principal, leaving little room for adjustment.

3. Prepayment Benefits: Flexi loans allow partial prepayments without additional charges, reducing the principal and, consequently, the interest burden. While term loans also permit prepayment, they often involve charges or penalties, which can negate the EMI-reducing benefit.

4. Usage Convenience: Flexi loans benefit recurring or uncertain financial needs, as you can withdraw funds multiple times within the approved limit. Conversely, term loans are better suited for one-time, planned expenditures where the exact amount is precise.

Both flexi and term loans have advantages, and the right choice depends on your financial goals and repayment capacity. If lowering your EMI and maintaining flexibility are your top priorities, a flexi loan might be the better option. However, a term loan could be ideal for fixed, planned expenses with consistent repayment capabilities. Partner with Aditya Birla Housing to explore loan options that align with your needs and secure your financial future.