What are flex loans?
A flex loan isn’t actually a loan — it’s an unsecured personal line of credit. Flex loans allow you to withdraw funds from a credit line up to a predetermined limit. As you pay down the balance, you can continue to borrow from the credit line, similar to a credit card.
You can get a flex loan through cash advance businesses and online lenders, and some banks have started to offer them as another form of lending. These loans are often easier to qualify for than traditional lending products, but are typically more expensive than credit cards and often carry much higher annual percentage rates (APRs) and fees.
How do flex loans work?
A flex loan is a lot like a credit card. It’s an open line of credit that doesn’t require collateral. The lender sets a credit limit that fluctuates as you draw from your credit line and pay down the balance. Unlike other lines of credit, flex loans often have no set term dates, meaning you can continue to draw funds and repay them as needed.
You make monthly payments, and like a credit card, you can choose to make just the minimum payment each month. But lenders often charge periodic fees on flex loans, either monthly, daily, or each time you draw funds. Some lenders charge a flat fee when you take out a flex loan.
These loans typically don’t require a credit check, depending on a lender’s underwriting requirements. Since lenders assume additional risk by not checking credit, flex loans often have higher interest rates or APRs than other lending products or credit cards. Flex loans are a popular option for individuals with bad or no credit. But the cost of borrowing is high, and you may struggle to make payments if fees continue to pile up.
Flex loans are typically used to cover immediate financial needs, emergencies, or hardships, but you can use loan funds for almost any reason. Because of the high APRs, it’s best to draw funds only when necessary if you have a flex loan.
How much can you borrow with a flex loan?
Flex loan amounts may vary depending on the lender and other factors. Loan amounts can range from as low as $100 to several thousand dollars. The amount you can borrow with a flex loan may depend on where you live. State laws regulate credit limit amounts.
How much do flex loans cost?
Flex loan costs also vary by lender. The cost of borrowing depends on the flex loan’s APR and the fees the lender charges. Remember to be cautious when considering a flex loan, since these loans carry much higher APRs than personal loans, credit cards, and other financial products. APRs can range from 24% to 28% or higher if you can get one through a credit union, but often flex loan APRs fall in the triple-digit range when you get them from cash advance establishments.
Flex loan fees can include application or administration fees, as well as loan usage fees, which can be a set daily or monthly charge or a percentage of your loan balance.
How to get a flex loan
Flex loans are typically available through cash advance companies, but you can also get them through select credit unions, banks, and online lenders. The application process may vary depending on the lender. Follow these general guidelines to get a flex loan:
Because of the high APRs and added fees, you should only consider a flex loan after exhausting other borrowing options, such as personal loans.
What are the pros and cons of flex loans?
Flex loans aren’t right for everyone. Here are some benefits and drawbacks to consider:
Pros
- Flexible borrowing: Flex loans allow you to borrow money repeatedly.
- Quick funding: Many lenders offer same-day funding if you’re approved for a flex loan.
- Easy to qualify: Flex loans don’t carry the same credit requirements as other lending products, making them easier to qualify for than a credit card or personal loan.
Cons
- High APRs: Flex loans often come with triple-digit APRs.
- Minimum payments add to your borrowing cost: If you only make the minimum monthly payments, fees and interest will continue to grow your debt, making it more challenging to pay off.
- Potential for overspending: Having an open-ended credit line can make it more tempting to borrow money, leading to overspending. This can trap you in a cycle of debt.
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