What to know about flex loans and how they work

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Flex loans are convenient, but can come with high costs. (Shutterstock)

If you’ve ever needed instant access to cash to cover an immediate financial emergency, you may have wondered what kind of loan could help you out. Flex loans are easy to secure, even if you have poor credit. Unfortunately, they typically come with very high interest costs, no matter the length or amount of the loan.

Let’s take an in-depth look at how flex loans work, their pros and cons, and how they compare to alternative fast-cash solutions like a personal loan from an online lender.

What is a flex loan?
How do flex loans work?
How much can you borrow with a flex loan?
How much do flex loans cost?
Pros and cons of flex loans
Alternatives to flex loans

What is a flex loan?

A flex loan is not like a normal personal loan — in fact, it’s not a loan at all. Flex loans are unsecured personal lines of credit that work much like a credit card. But they tend to be more expensive than credit cards.

Flex loans provide two key benefits: If you have poor or limited credit you can usually secure a flex loan, and you can receive funds immediately. You might consider a flex loan when you need to cover an emergency expense and aren’t able to get a personal loan.

Flex loans usually come from cash advance establishments and online lenders. Some banks and credit unions may offer flex loans, but keep in mind that they may label a personal loan as a "flex loan." Personal loans are not lines of credit.

How do flex loans work?

When you take out a flex loan, the lender gives you access to a line of credit. You draw on that credit as needed and you’ll make a payment every month until you pay off the balance. You can choose to only pay the minimum, pay extra, or pay in full each month. Flex loan lenders charge interest only on the amount you borrow and any balance you carry from month to month.

While lenders may not charge additional fees — like a loan origination fee — annual percentage rates for flex loans tend to be very high, making them a costlier option compared to other short-term loans.

What can you use a flex loan for?

Like personal loans, flex loans can be used for any purpose. But many borrowers use smaller flex loans to bridge the gap if they have large monthly bills, unexpected car repairs, or medical bills due in between paychecks.

Because of their very high APRs, flex loans should really only be an option when you can’t cover an emergency cost in a less expensive way.

How much can you borrow with a flex loan?

All loan amounts and terms will be unique to the lender you choose. Generally, though, flex loans can be for as little as $100 up to several thousand dollars.

Similar to credit cards and personal loans, borrower approval will depend on a number of factors. Some lenders may require proof of citizenship, employment, bank account, and that you’re 18 or older.

How much do flex loans cost?

Flex loans typically come with very high interest rates and fees that can add up to APRs of 200% or higher. By contrast, credit card and personal loan APRs are typically only in the double digits, even for borrowers with poor credit. Since APR encompasses both the interest rate and the fees associated with the loan, it’s a better indicator of a credit product’s true cost.

The overall costs of flex loans depend on the amount that you borrow, the interest rate, and the length of time it takes you to repay it. As with any type of revolving credit, if you only make the minimum payment each month it can take longer to repay the loan.

Before taking out a flex loan, be sure to check personal loan rates. Some lenders offer loans for people with less-than-perfect credit, and online lenders can often provide next-business-day funding.

Flex loans vs. credit cards

Although both are revolving lines of credit, credit cards have some advantages over flex loans. A credit card may have a higher maximum credit amount than a flex loan. And while credit card interest rates are typically higher than personal loan interest rates, they’re still significantly lower than typical flex loan APRs. But it can be difficult to qualify for a credit card if you have poor or little credit history.

Flex loans vs. payday loans

Payday loans are short-term, high-interest loans which are due for repayment on the borrower’s next payday. APRs for payday loans can be 390% or more, according to the Consumer Financial Protection Bureau. This is substantially higher than typical flex loan APRs. For both payday and flex loans, if you pay late, the lender will assess fees that can be high.

Pros and cons of flex loans

All financial products have advantages and disadvantages. It’s important to weigh the benefits and drawbacks before committing to a flex loan.

Pros

Qualifying for a flex loan is generally easy, and most borrowers can secure one even with poor or limited credit histories.
Loan approval is usually quick and the release of funds is just as swift.
Unlike a traditional loan, you can continue to access your credit line after the initial withdrawal. This allows you to gain access to more funds as emergencies arise.

Cons

High APRs make flex loans a very costly form of credit.
If you only pay the minimum each month, interest and fees can add up, pushing you into expensive debt that could be difficult to pay off.
Access to an open unsecured line of credit could tempt you to overspend.

Alternatives to flex loans

Flex loans aren’t the only option if you need money quickly and have poor credit. Before committing to a high-cost credit product, consider these alternatives:

Bad credit personal loans — Bad credit personal loans are fixed-rate loans designed for borrowers with lower credit scores. While a bad credit score may get you a higher interest rate than a good credit score, a bad credit personal loan typically has a much lower APR than a credit card or flex loan.
Auto repair loans — These loans are used to cover car repairs and are dispersed in a lump sum. No collateral is required for these unsecured loans. Borrowers who need to cover repair costs while waiting on insurance settlements could choose this over a flex loan.
Credit-builder loans — Credit-builder loans are designed to help borrowers with poor or no credit history build credit responsibly. Instead of getting the money upfront, however, you get the loan payout after you’ve made a certain number of payments. Credit-builder loans often pay out at the end of the loan term, so they may not be a good option if you need money right away to cover an unexpected expense.
Short-term loans — Short-term loans require little to no collateral and have shorter repayment terms. Although they require a credit check, lower APRs and faster repayment times provide borrowers with a responsible way to secure funds and relieve themselves of the debt fast.
Peer-to-peer loans — Peer-to-peer lending online is a nontraditional way to borrow money directly from independent lenders or investors. Although the lending sites set different rates and terms, some borrowers can benefit from competitive rates and low fees.