Flexible Loan

Borrow what you want and only pay interest on .the outstanding balance

The flexible loan now comes in many shapes and sizes. Flexible banking allows you to offset your borrowing against your savings. Flexible loans allow you to borrow within limits whilst only paying interest on the outstanding balance at each billing point; and therefore also to vary payments. That's ideal for taking a break over Christmas, or overpaying if you come into some money.

The flexible loan is a by-product of the trend towards flexible banking; it just happens that flexible banking makes the flexible loan a particularly useful product.

In a nutshell, flexible banking says: the interest on any savings product you have with the company will offset the charged interest on any borrowing product (this is called offsetting- see the Woolwich and Barclays for good examples). This has been expanded to a broader philosophy of removing some of the rules of lending and simply offering two pots- a savings and a borrowing pot, which you can dip into at any time.

Egg is probably the best example of a flexible loan- the loan is instead closer to a large overdraft. With an Egg loan, you can overpay, underpay, take repayment holidays- indeed largely do what you want; with interest paid on the outstanding balance. Furthermore, any money you didn't need to borrow in the first place isn't charged for- if you've ever borrowed £10,000 for a car, used £9,000 and wondered why you're paying interest on £1,000 you didn't need will see the value in that.

Expect to see other players provide a flexible loan product in the next two to three years: offsetting and open plan banking has become very popular, and the flexible loan is a natural extension.

If by flexibility, you maybe just want some innovative options, it's also worth mentioning the Clydesdale Bank, who for example will let you pay a loan in weekly instalments- ideal if you're on weekly pay.