The Benefits of a Flexible Loan

Written by Karen Bryan

working out financesWhen applying for a loan, you should first have a good think about how much you’d like to borrow and over how long a term. Ideally, you should opt for the shortest possible term, as this means that you will pay less in interest.

However, you need to make sure that you can afford the monthly repayments. There’s no point in not having enough money on which to live after forking out for the loan repayments. To work out how much you can afford to pay towards the loan each month, you need to draw up a realistic budget, making sure that you factor in irregular expenses such as Christmas gifts.

Hitachi Personal Finance offer flexible loans which give borrowers the opportunity to change the length of the loan, thereby reducing monthly payments. As an example, a borrower might apply for a £5,000 loan over 36 months and be accepted on that basis. The borrower can then (upon approval) change the term to 60 months to lower their payments. There are no additional fees or set up charges for doing this, and the rate of interest paid on the loan remains the same.

You need to be aware that, if you reduce your monthly payments, the loan will cost your more in total. This is because you are charged interest over a longer period of time.

Flexibility works both ways. If at some point you do have some excess cash, e.g. through a pay rise at work, you could use some of that extra cash to pay off part, or all, of your Hitachi loan, with no additional fees or charges for doing this.

When deciding whether to pay off a loan, or put that extra money into savings, you need to compare the interest rate paid in both scenarios. For example, if you pay a rate of 3.8% interest on your loan and your savings account pays a net (after deduction of income tax) rate of 2%, you’d be better off paying off your loan.

You also need to look at the interest rate you are paying on any other loans, including credit cards. You should generally pay off the loans charging the highest rate of interest first.