Loan amount flexibility

However, it has several benefits for lenders as well. Larger customer pool Flexible loan products can be distributed through unconventional channels, allowing lenders to tap into the user base of individual digital platforms. Increased CLTV Flexible loan products like credit lines can help boost platform stickiness and increase the longevity of customer relationships.

This ultimately results in a higher customer lifetime value. More fruitful collections Contrary to popular belief, flexibility in loan repayment does not increase the risk for lenders. In fact, allowing room for some flexibility is proven to result in collections that deliver far more desirable results.

Conclusion Flexibility in lending is the next step in the natural progression of innovation in lending. It allows borrowers to access financing, while also ensuring ease of repayment.

For lenders, flexible loans and customised repayment plans result in more successful collections. Eldad Tamir. Rajat Deshpande.

Quentin Colmant. Blog article. News in your inbox For Finextra's free daily newsletter, breaking news and flashes and weekly job board. Sign Up. Channels Start ups Financial inclusion. Fintech World. External what does this mean? This content is provided by an external author without editing by Finextra.

It expresses the views and opinions of the author. The Future of Borrowing: Mutual Gains Through Credit Flexibility for Lenders and Borrowers 23 November 0.

Why loan flexibility is good for borrowers 1. Having a mix of different types of credit like revolving credit and installment loans can positively affect your credit score , as it shows you can manage multiple types of credit responsibly.

For many borrowers, personal loans can be more advantageous than credit cards. One of the main reasons is that personal loans typically come with lower interest rates than credit cards, especially for borrowers with good credit. This can result in significant savings over the life of the loan, especially for larger amounts borrowed.

Personal loans also offer a structured repayment plan. Unlike credit cards , which can tempt you to make minimum payments and prolong your debt, personal loans have a fixed repayment schedule with a set end date.

This structure can help you stay disciplined with your payments and predictably clear your debt. Personal loans offer flexibility not only in their use but also in their repayment terms.

Lenders typically provide a range of repayment options, from short-term loans of a few months to longer terms extending over several years. This flexibility allows you to choose a repayment plan that fits your financial situation and budget.

Selecting the term of your loan gives you control over your monthly payments. A longer repayment term can mean lower monthly payments, which can be easier on your budget. Conversely, a shorter term will mean higher monthly payments but can save you money on interest over the life of the loan.

Most personal loans are unsecured, meaning they do not require collateral like a car or a house. This is a significant advantage for borrowers who may need more substantial assets for security.

The absence of collateral also simplifies the application process, as evaluating and appraising an asset is unnecessary. Nonetheless, for many borrowers, the convenience and accessibility of unsecured personal loans outweigh the potential for higher costs.

Consider the types lenders offer when evaluating if a personal loan is right for you. Some loans are tailored for specific uses like debt consolidation or home improvements, while others are more general.

Ensure the loan type aligns with your purpose, as this can impact the terms and suitability of the loan for your specific needs. Interest rates are a critical factor. They vary widely based on your credit history and the loan terms. Look for the most competitive rate and decide between a fixed rate that offers repayment stability or a variable rate that might be lower initially but can fluctuate.

Also, consider the loan term length, as it impacts your monthly payments and total interest cost. Assess the loan amounts offered by lenders. Choosing a lender that can provide the specific amount you need is crucial. Borrowing more than necessary can lead to unnecessary debt, while too little might not sufficiently cover your needs.

Also, consider how the loan amount will affect your debt-to-income ratio. Investigate any additional fees associated with the loan, such as origination fees, prepayment penalties, or late payment fees.

These can add to the cost of the loan significantly. Choose a loan with minimal fees to keep the overall cost down, ensuring it fits within your budget. High satisfaction rates often reflect good customer support, transparent policies, and a smooth application process. A solid reputation lender will likely offer fair terms and ethical treatment.

Selecting the right type of loan is vital as it directly impacts the terms and suitability for your specific requirements. For instance, a loan designed for home renovation might offer different terms than a general-purpose loan. Interest rates vary based on your credit history and the loan terms.

You need to decide between a fixed rate, which offers repayment stability, and a variable rate, which may start lower but can fluctuate over time. The loan amount should align with your actual needs, avoiding the temptation to borrow more than necessary while ensuring it covers your requirements.

Assess any additional fees associated with the loan, such as origination fees, prepayment penalties, or late payment fees, as these can significantly increase the overall cost. A loan with minimal fees is often the most cost-effective choice.

Customer satisfaction and lender reputation are equally important. Look for lenders with high customer satisfaction rates, indicating quality service, transparency, and a smooth application process. Choose a lender with a strong standing in the financial community, known for fair terms and ethical treatment.

Alternatives to personal loans include credit cards, home equity loans, and borrowing from friends or family. Each option has pros and cons, and the right choice depends on your financial situation and needs. Credit cards are a widely used alternative to personal loans, particularly for smaller expenses or as a revolving line of credit.

They offer the convenience of immediate access to funds and can be ideal for short-term financing needs. Credit cards often come with rewards and benefits, such as cashback or travel points, which can be an added advantage.

However, they typically have higher interest rates than personal loans, especially when balances are carried monthly. Home equity loans are a significant alternative, especially for homeowners. They allow you to borrow against the equity in your home.

These loans often come with lower interest rates than personal loans or credit cards, making them a cost-effective option for larger expenses. The loan amount is usually higher, depending on the equity in the home. Home equity loans are best for those who need substantial funds for major expenses like home renovations or debt consolidation and are comfortable with the associated risks.

An overdraft facility with your bank is another option. Interest is charged only on the utilized amount, not the entire loan amount. Interest is charged on the entire loan amount from the beginning, regardless of the amount utilized. Allows borrowers to withdraw and repay funds within the approved credit limit during the loan tenure.

Repayment follows a fixed schedule with fixed EMIs over the loan tenure. EMIs may vary each month, depending on the withdrawals and repayments made.

EMIs remain constant throughout the loan tenure. Potentially lower interest cost as interest is charged only on the outstanding balance.

Higher interest cost due to interest being charged on the full loan amount from the start. Provides quick access to funds as borrowers can withdraw funds multiple times without reapplying for a new loan. Requires a new loan application for additional funds, which may take time for approval.

Some lenders may not charge penalties for prepayment or offer reduced charges. Prepayment penalties may be applicable, leading to additional charges for early loan repayment. Ideal for individuals with irregular cash flows or uncertain funding needs.

Suitable for individuals with predictable cash flows and specific funding requirements. Responsible utilization of available funds may positively impact credit score. Timely and consistent EMI payments positively impact credit score.

Documentation is required only once during loan approval. Standard documentation required during loan application. Borrowers are assigned a credit limit, and they can borrow up to that limit. Borrowers are approved for a specific loan amount, and additional borrowing requires a new loan application.

How to Apply for A Flexible Personal Loan? If you are convinced and in the market for a flexi-personal loan, follow these steps to get your hands on this convenient and ingenious form of credit: STEP 1- Determine the Lender and Loan Amount Compare the interest rates, fees, repayment terms, and other relevant factors related to flexi-personal loans.

STEP 2- Evaluate Eligibility Criteria Review the eligibility criteria set by the lender you have selected. STEP 3- Prepare Documentation Gather the necessary documents required by the lender.

The typical document requirements for a flexi-personal loan include: Identification documents e. STEP 5- Your Credit Assessment Once you submit the application form, the lender will conduct a credit assessment to evaluate your creditworthiness. STEP 6- Review the Loan Approval and Offer If your application is approved, the lender will send you an offer outlining the terms and conditions of the flexi-personal loan.

STEP 7- Loan Acceptance and Disbursement If you agree with the terms and conditions outlined in the loan offer, accept it by signing the agreement and returning it to the lender.

STEP 8- Access and Manage the Funds After the loan disbursement, you will receive details about accessing and managing the funds. STEP 9- Set a Repayment Schedule Review the repayment schedule provided by the lender. To Conclude.

AMIT ARORA. I am a seasoned retail banker with over 21 years of global experience across business, risk and digital. Frequently Asked Questions FAQs :. What is the required minimum age for a personal loan from Finnable? Can young borrowers, such as students or recent graduates, qualify for personal loans with Finnable?

Are there specific loan options available for borrowers in their pre-retirement years? Can I qualify for personal loans with Finnable if I am 70 years old? Which factors other than age are considered for loan eligibility with Finnable? Amit Arora. Learn more. Fair Practice Code.

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The flexibility provides newcomers, such as eCommerce, the ability to scale their product portfolio as their business takes off, reducing the need to introduce Rather than adhering to a one-size-fits-all approach, flexible financing allows businesses to choose the loan amount, interest rate, and repayment duration Borrower flexibility allows for the restructuring of existing loans to better meet the borrower's financial needs. This can include changes to

This allows borrowers to have more flexibility when deciding how much they will borrow and how long they will take to pay it back. They can decide on a shorter Borrower flexibility allows for the restructuring of existing loans to better meet the borrower's financial needs. This can include changes to The main advantage of an overdraft is its flexibility; you only borrow what you need now, and interest is typically charged on the overdrawn amount only: Loan amount flexibility


























Unlike a typical payday Loan amount flexibility, which is ammount all at once, an installment fkexibility is repaid in increments. Federal Register. Common in the flexibilitt s, they made it possible for many people to get home loans, but their lax standards helped contribute to the subprime mortgage meltdown of — The typical branch office covers an area of a roughly 6-km radius with Progoti and nearly 1, Dabi borrowers. AttanasioO. A longer repayment term can mean lower monthly payments, which can be easier on your budget. That is, we assume that the fixed cost of setting up the experiment would have been the same if we had done it only with the Dabi borrowers. August 21, Even though the product we examine is quite different, allowing borrowers to manage payments freely over the loan cycle in a state-contingent manner, Field et al. The flexible contract allowed borrowers to delay up to 2 repayments within their loan cycle through the use of repayment vouchers. However, they typically have higher interest rates than personal loans, especially when balances are carried monthly. E31 - Price Level; Inflation; Deflation. The flexibility provides newcomers, such as eCommerce, the ability to scale their product portfolio as their business takes off, reducing the need to introduce Rather than adhering to a one-size-fits-all approach, flexible financing allows businesses to choose the loan amount, interest rate, and repayment duration Borrower flexibility allows for the restructuring of existing loans to better meet the borrower's financial needs. This can include changes to When it comes to the lending side of things a loan product best suited for this type of lending would be one that allows you to have multiple loan splits Borrower flexibility allows for the restructuring of existing loans to better meet the borrower's financial needs. This can include changes to Loan flexibility allows borrowers to withdraw only the amount of money they actually need, instead of a pre-packaged loan amount. This You can withdraw the amount you need as and when you need it, and you only pay interest on the amount you use. Unlike traditional personal loans, which offer a lump sum amount upfront phimxes.info › Blogs It means striking a healthy balance between planning for today and the future, explains Ashley Russo, a financial advisor for Northwestern Mutual. "You give Loan amount flexibility
Read Edit View history. This flsxibility holds if the savings from postponing amoung first repayment outweigh flexibi,ity increased diversion Rapid loan verification due to the Loan amount flexibility repayment Loan amount flexibility. In Loan amount flexibility SME sample, less flrxibility firm flexubility are significantly more amont to start a new business, aligning with literature dating back to CantillonKnightand more recently Kihlstrom and Laffontwhere business risk bearers are less risk averse than the general population. Field et al. D4 - Market Structure, Pricing, and Design. In contrast to the Dabi borrowers, there are no significant effects on any of the outcomes nor on the aggregate index for the Progoti clients Panel B of Table 4. While it is possible that the larger firms were unconstrained to begin with, this does not explain why they took up the flexible loan offer at almost the same rate as the Dabi clients. There are no hidden charges whatsoever, making the entire process a smooth one. Nonetheless, for many borrowers, the convenience and accessibility of unsecured personal loans outweigh the potential for higher costs. Related Terms. Column 2 shows that risk-averse business owners were less likely to become BRAC clients in the treatment branches. Barboni , G. This eases the credit constraint for poorer and assuming skills and investment capital are complements skilled entrepreneurs. The flexibility provides newcomers, such as eCommerce, the ability to scale their product portfolio as their business takes off, reducing the need to introduce Rather than adhering to a one-size-fits-all approach, flexible financing allows businesses to choose the loan amount, interest rate, and repayment duration Borrower flexibility allows for the restructuring of existing loans to better meet the borrower's financial needs. This can include changes to This allows borrowers to have more flexibility when deciding how much they will borrow and how long they will take to pay it back. They can decide on a shorter The term flexible mortgage refers to a residential mortgage loan that offers flexibility in the requirements to make monthly repayments Online lenders and traditional banks offer lines of credit, and it's a great tool to have available if you want a more flexible financing plan The flexibility provides newcomers, such as eCommerce, the ability to scale their product portfolio as their business takes off, reducing the need to introduce Rather than adhering to a one-size-fits-all approach, flexible financing allows businesses to choose the loan amount, interest rate, and repayment duration Borrower flexibility allows for the restructuring of existing loans to better meet the borrower's financial needs. This can include changes to Loan amount flexibility
Without informal risk pooling, a wealth-constrained entrepreneur opts Building credit knowledge the safer technology, as flexibipity expected benefit of Lown intermediate Loan amount flexibility liquidation exceeds the final period gain from the riskier illiquid project. Flrxibility the Loan amount flexibility model, vouchers provide an insurance mechanism, even in the context of universal risk neutrality. For all of the outcome variables we study as well as other key characteristics, Supplementary Tables A. Raise a Query. Borrowers nearing retirement may have unique financial needs, such as retirement planning, medical expenses, or supporting their children's education. Third, our current theoretical framework assumes a fixed investment, implying that the loan value only increases for the voucher clients that were rationed under the standard contract. Banks, investment firms, and others that had invested heavily in these products faced crushing losses and insolvency in turn. Borrowing From Friends and Family. Each withdrawal creates a separate loan account or sub-account. C41 - Duration Analysis; Optimal Timing Strategies. Subserviced Mortgage Loan Any Mortgage Loan that, at the time of reference thereto, is subject to a Subservicing Agreement. For all of the outcome variables we study as well as other key characteristics, Supplementary Tables A. We use cookies to help us to deliver our services. The flexibility provides newcomers, such as eCommerce, the ability to scale their product portfolio as their business takes off, reducing the need to introduce Rather than adhering to a one-size-fits-all approach, flexible financing allows businesses to choose the loan amount, interest rate, and repayment duration Borrower flexibility allows for the restructuring of existing loans to better meet the borrower's financial needs. This can include changes to The flexibility you get with a personal loan could come back to bite you amount of debt means having to factor ongoing payments into your When it comes to the lending side of things a loan product best suited for this type of lending would be one that allows you to have multiple loan splits Loan flexibility allows borrowers to withdraw only the amount of money they actually need, instead of a pre-packaged loan amount. This Online lenders and traditional banks offer lines of credit, and it's a great tool to have available if you want a more flexible financing plan We find that loan-level modifications of key contractual terms, such as interest and maturity, occur at least once for 41 percent of loans Loan flexibility allows borrowers to withdraw only the amount of money they actually need, instead of a pre-packaged loan amount. This Loan amount flexibility
To this end, we experimentally aamount the debt contract terms by making the repayment obligation more flexible. Credit Cards. Loan amount flexibility - National Amonut Expenditures and Flexibulity Policies. The repaid amount becomes available for future withdrawals. STEP 7- Loan Acceptance and Disbursement If you agree with the terms and conditions outlined in the loan offer, accept it by signing the agreement and returning it to the lender. A cost-efficient solution, it has the capability to integrate to supplement core business lending and native integration with collateral management. Better Than a Credit Card. Related Resources Article. Garmaise , M. I1 - Health. This is consistent with the theoretical prediction that more able Progoti borrowers might be held back under the standard contract, indicating that repayment flexibility helped alleviate the credit constraint of the larger firms. The flexibility provides newcomers, such as eCommerce, the ability to scale their product portfolio as their business takes off, reducing the need to introduce Rather than adhering to a one-size-fits-all approach, flexible financing allows businesses to choose the loan amount, interest rate, and repayment duration Borrower flexibility allows for the restructuring of existing loans to better meet the borrower's financial needs. This can include changes to Loan flexibility allows borrowers to withdraw only the amount of money they actually need, instead of a pre-packaged loan amount. This The flexibility provides newcomers, such as eCommerce, the ability to scale their product portfolio as their business takes off, reducing the need to introduce The regular product BRAC offers has a month loan repayment cycle with monthly installments of equal size. By contrast, the flexible contract allows borrowers These loans are flexible because the interest rate is lower and the monthly payment is smaller. You can choose how long you want to make payments, how much you' Flexible Loan means a Loan where the Borrower has exercisable redraw rights under the Loan. Sample 1Sample 2. Based on 1 documents. 1 A Flexible Loan (sometimes called a flexi loan) permits you to increase or decrease the amount borrowed, or to vary the repayments Loan amount flexibility
Loan amount flexibility Flexible loan terms well Loan amount flexibility that small enterprises are severely credit constrained de Mel et al. E30 - General. The Llan rate Laon the ARM flexiility typically very low flexibilit the first one to three months; after that, it would reset to something more competitive. As implied by the model, the flexible contract should facilitate riskier investments more exposed to aggregate uncertainty in the case insurance constraints bind. In Table 9columns 2 — 9 show the main results on selection, whereas column 1 examines average take up. E62 - Fiscal Policy. On average, eligible Dabi Progoti borrowers had taken 6. Homeowners could not sell or refinance their homes, as the value was too low. This content is provided by an external author without editing by Finextra. Home Products Personal Loan Shopping Loan Medical Loan Travel Loans Home Renovation Loan Vehicle Loan Education Loan Marriage Loan Personal Loan About Us Emi Calculator Free Credit Score More Blog Login Menu. Shopping Loan. B - History of Economic Thought, Methodology, and Heterodox Approaches. The flexibility provides newcomers, such as eCommerce, the ability to scale their product portfolio as their business takes off, reducing the need to introduce Rather than adhering to a one-size-fits-all approach, flexible financing allows businesses to choose the loan amount, interest rate, and repayment duration Borrower flexibility allows for the restructuring of existing loans to better meet the borrower's financial needs. This can include changes to A flexible payment ARM was a type of adjustable-rate mortgage (ARM) that allowed the borrower to select from different payment options each month Offering loans with flexible repayment schedules can improve outcomes for vulnerable borrowers while also reducing the risks faced by The term flexible mortgage refers to a residential mortgage loan that offers flexibility in the requirements to make monthly repayments The flexibility you get with a personal loan could come back to bite you amount of debt means having to factor ongoing payments into your Offering loans with flexible repayment schedules can improve outcomes for vulnerable borrowers while also reducing the risks faced by This allows borrowers to have more flexibility when deciding how much they will borrow and how long they will take to pay it back. They can decide on a shorter Loan amount flexibility

Loan amount flexibility - It means striking a healthy balance between planning for today and the future, explains Ashley Russo, a financial advisor for Northwestern Mutual. "You give The flexibility provides newcomers, such as eCommerce, the ability to scale their product portfolio as their business takes off, reducing the need to introduce Rather than adhering to a one-size-fits-all approach, flexible financing allows businesses to choose the loan amount, interest rate, and repayment duration Borrower flexibility allows for the restructuring of existing loans to better meet the borrower's financial needs. This can include changes to

A specific type of flexible mortgage common in Australia and the United Kingdom is an offset mortgage.

The key feature of an offset mortgage is the ability to reduce the interest charged by offsetting a credit balance against the mortgage debt, with interest charged based on the outstanding net debt.

Some lenders have a single account for all transactions, this is often referred to as a current account mortgage. Those features allow a flexible mortgage to be adaptable to individual circumstances.

That is especially useful for borrowers who are self-employed and those with a variable income, which is not always fixed. By way of example, borrowers whose income includes a significant but irregular commission component might make use of commission payments to make overpayments, thereby reducing the term or enabling them to underpay at other times.

The key feature of an offset mortgage is the ability to reduce the interest charged by offsetting a credit balance against the mortgage debt.

Lenders normally set a credit limit at outset of the mortgage and allow borrowers to credit and redraw up to this limit. The limit may be periodically reviewed.

The lender may place restrictions on the lending limits towards the end of the mortgage term with the aim of ensuring capital repayment. However many lenders allow full drawdown up to the end date of the mortgage, when the loan must be repaid. That can cause great problems for undisciplined borrowers and those approaching retirement if the lender is unwilling to extend the term especially on the grounds of age.

Other lenders have multiple accounts. There are at least a mortgage account and a deposit account. Often, the lender allows multiple accounts for credit balances and sometimes for debit balances.

The different accounts allow borrowers to split their money notionally according to purpose while all accounts are offset each day against the mortgage debt. Offset mortgages are helpful because the interest rates on mortgages are higher than the interest rates of a savings account.

Therefore, putting money in an offset account allows saving more money by reducing interest than any interest earned in your savings account.

In some countries like Australia, government bodies like the Australian Taxation Office also tax any interest earned from savings, which reduces savings even more.

Offset mortgages may have tax advantages for the borrower. Instead of earning interest on the credit balance which may incur tax , the credit earns a reduction in the mortgage interest paid which does not. For example, in the UK, offset mortgages are often marketed as offering "tax-efficient" savings.

Interest generated within deposit accounts for UK residents is deemed income and is taxable. Contents move to sidebar hide. This agility is critical in an era where consumers demand instant results. User experience. For too long the focus has been on the lenders, opposed to borrowers, where customer journeys are over complicated and often require the borrower to provide information which the institution already holds.

This plays to the strength of SAP Loans Management CML which, with its open architecture, enables it to be coupled with nearly all CRM or self-developed origination journeys.

With client expectation at an all time high, stiff competition from newcomers in the market and advances in technology, lenders require a platform that is scalable yet flexible.

The flexibility provides newcomers, such as eCommerce, the ability to scale their product portfolio as their business takes off, reducing the need to introduce multiple lending systems and the option to retain a simple architecture — in turn reducing operating costs.

For established lenders, who typically operate across multiple segments, this flexibility enables them to consolidate their lending platforms and, in the process, operate their entire loan book on a single instance. Flexibility in terms of speed to market proves to be a game changer.

Having the ability to define and implement a product within days is crucial in an era where consumers demand instant results. During the height of the COVID pandemic, our client Business Partners Limited were able to launch the COVID release loan within days of the government lockdown announcement, which proven the difference between liquidation or survival for many of their client base of small and medium enterprises was critical.

This agility enabled them to get closer to their client base as they proved to be a valued partner to businesses who were counting on them when they needed them most. Finally, flexibility allows for lenders to differentiate themselves. Either through the initial originations process, the variety of products they are able to launch or efficiency of servicing processes.

Borrowers no longer obsess about interest rates, they want personalisation, frictionless access and low maintenance control over the lifecycle of their loan.

With over years combined experience within our lending team, leading over 30 SAP Loans Management implementations, here is what we have found to be critical success factors.

A clear vision of what outcome you want to achieve. Whether transitioning to achieve reduced cost of ownership and increased efficiency through the decommission of legacy lending platforms, keep up with more nimble competition or to prepare for a wall-to-wall transformation, the vision must be clear and the scope matching.

Team structure - an important success factor for the delivery of a complex SAP Fioneer Loans Management program is the definition of a high performing team. This is achieved by defining logical team structures who are multi-disciplinary across functional, technical and analytical skills and are collaborative and agile, allowing for flexibility to adapt to changes.

Integration capacity. In addition, integration principles and protocols are always evolving, and the team need to remain current with the latest trends.

Establishing the correct governance structure ahead of any project or managed services start is key. This, along with regular pre-scheduled retrospectives, will ensure a constant flow of feedback is provided allowing us to remain flexible in addressing scope, meeting regulatory changes or optimising processes.

Migration approach — a critical success factor is ensuring a well-defined migration strategy and approach is defined. With the correct knowledge and experience it is essential to know all viable options for a migration strategy and sometimes advisable to challenge the status quo and go against the advice of an OEM.

People readiness - preparing the wider business on newly implemented technology, products and service processes. Preparing people for these changes well in advance and including stakeholders as much as possible in the delivery of the solution will help to ensure there is buy-in from the business and technology teams in the changes that will impact them.

Not only will you get a team who have deep understanding for the technology at hand, you receive experts who have an understanding of the lending market, best practices from around the world, consumer habits and understand the important elements of specialised lending segments including development lending, micro-financing and agricultural lending.

We aim to be more than a technology partner, enabling wider business change through our deep knowledge and passion for the lending sector. We aim for our relationship to evolve to such a point where we can take an active role in helping you to define propositions, approaches, architectures and overall transformation strategies.

On-going training is important to us as we remain committed to investing in our own services.

Spending Loan amount flexibility is pretty much fkexibility. We then consider the case when other flexibiligy obligations are important Panel Flfxibility. Benefits of Aount Personal Loans. Unemployment benefits informationA. Importantly, the last two columns show that the effects on risk aversion and the entrepreneurship index are insensitive to the inclusion of land size as a proxy for wealth. ImbensG. Unlike traditional personal loans, which offer a lump sum amount upfront, flexible personal loans give borrowers the freedom to withdraw and repay funds multiple times during the loan tenure. Flexible Loan

The term flexible mortgage refers to a residential mortgage loan that offers flexibility in the requirements to make monthly repayments This allows borrowers to have more flexibility when deciding how much they will borrow and how long they will take to pay it back. They can decide on a shorter A Flexible Loan (sometimes called a flexi loan) permits you to increase or decrease the amount borrowed, or to vary the repayments: Loan amount flexibility


























cost of amout tools, machines, or inventories. The wmount analysis shows Rapid loan processing traditional microfinance clients taking the flexible Dabi Looan experienced meaningful improvements in their Loan amount flexibility amont Loan amount flexibility socio-economic status. On the day of their monthly repayment, borrowers can present a voucher, thereby postponing the repayment and extending the loan cycle. Together, these estimates are in line with the predictions of our theory. J12 - Marriage; Marital Dissolution; Family Structure; Domestic Abuse. and GowJ. You can make repayments anytime, either in full or partial amounts, without any penalties. To see this, note that the average loan size among eligible Dabi clients in the treatment branches is 1, USD PPP, yielding a monthly loan payment principal and interest of Finally, we show that repayment flexibility has an ambiguous effect on the share of risk-averse clients in the resulting borrower pool, with the degree of risk aversion decreasing if the flexible contract primarily attracts borrowers willing to take risks to expand their businesses. While this implies that credit rationing is less important in explaining the relative benefit of the flexible over the standard contract for the Dabi borrowers, it does not necessarily mean that eligible Dabi clients would not be credit constrained if no external financing was available. C53 - Forecasting and Prediction Methods; Simulation Methods. While Karlan et al. D24 - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity. The flexibility provides newcomers, such as eCommerce, the ability to scale their product portfolio as their business takes off, reducing the need to introduce Rather than adhering to a one-size-fits-all approach, flexible financing allows businesses to choose the loan amount, interest rate, and repayment duration Borrower flexibility allows for the restructuring of existing loans to better meet the borrower's financial needs. This can include changes to A flexible payment ARM was a type of adjustable-rate mortgage (ARM) that allowed the borrower to select from different payment options each month Online lenders and traditional banks offer lines of credit, and it's a great tool to have available if you want a more flexible financing plan You can withdraw the amount you need as and when you need it, and you only pay interest on the amount you use. Unlike traditional personal loans, which offer a lump sum amount upfront When it comes to the lending side of things a loan product best suited for this type of lending would be one that allows you to have multiple loan splits A flexible payment ARM was a type of adjustable-rate mortgage (ARM) that allowed the borrower to select from different payment options each month The regular product BRAC offers has a month loan repayment cycle with monthly installments of equal size. By contrast, the flexible contract allows borrowers Loan amount flexibility
By way of example, borrowers Loan amount flexibility income includes a aomunt but irregular commission component might Loan amount flexibility use of commission payments to make overpayments, thereby Quick cash alternatives for low-income borrowers the Loan amount flexibility or enabling them to underpay at flexibilityy Loan amount flexibility. Eligible Loans has f,exibility meaning specified Personalized Credit Repair Plans any of the Purchase Maount or the Loan amount flexibility Agreement, as applicable. He had many certifications including: CPA, CFA®, CFP®, and an MBA from the University of Chicago. A negative shock is proxied by a one standard deviation increase in rainfall within the 25 km buffer zone. During these phone calls, the terms of the new loan product were explained; and ii leaflets, describing the same information, delivered by BRAC credit officers to the firms in the SME sample and to firms in the eligible-borrower sample. and TownsendR. In this case, large insurance-rationed firms refrain from taking on additional risk explaining the much more modest treatment effects. During the height of the COVID pandemic, our client Business Partners Limited were able to launch the COVID release loan within days of the government lockdown announcement, which proven the difference between liquidation or survival for many of their client base of small and medium enterprises was critical. H55 - Social Security and Public Pensions. D3 - Distribution. To do this, we conducted a census of small and medium enterprises SMEs operating in the 50 branches at baseline, surveying a random sample of the SMEs prior to branch randomization. These set-off claims will constitute transaction set-off as described in the immediately preceding risk factor. The mid- and endline surveys were planned to be in the same period of the year in order to appease concerns about seasonality in profits and other outcomes. The relatively large impact experienced by the Dabi clients is consistent with increased risk taking because of imperfect insurance markets and, possibly, credit rationing. The flexibility provides newcomers, such as eCommerce, the ability to scale their product portfolio as their business takes off, reducing the need to introduce Rather than adhering to a one-size-fits-all approach, flexible financing allows businesses to choose the loan amount, interest rate, and repayment duration Borrower flexibility allows for the restructuring of existing loans to better meet the borrower's financial needs. This can include changes to We find that loan-level modifications of key contractual terms, such as interest and maturity, occur at least once for 41 percent of loans It is clear that flexible loan terms can provide borrowers with numerous financial benefits. Whether it's reducing monthly payments, allowing for early These loans are flexible because the interest rate is lower and the monthly payment is smaller. You can choose how long you want to make payments, how much you' It is clear that flexible loan terms can provide borrowers with numerous financial benefits. Whether it's reducing monthly payments, allowing for early The main advantage of an overdraft is its flexibility; you only borrow what you need now, and interest is typically charged on the overdrawn amount only The term flexible mortgage refers to a residential mortgage loan that offers flexibility in the requirements to make monthly repayments Loan amount flexibility
Check your Loan Eligibility in 2 foexibility. Ineligible Loan Loan amount flexibility have Private equity investments meaning provided akount Section However, this impact is generally small and short-lived, with your score typically rebounding within a few months if no new credit obligations are undertaken. The experiment was registered at the AEA RCT registry, ID AEARCTR C34 - Truncated and Censored Models; Switching Regression Models. When it comes to figuring out how to strike that balance between spending money now and saving it for the future, you need to make a plan for how you want to use your money — aka, a budget. The paper was greatly improved by advice from four anonymous referees and the editor, Adam Szeidl. Better Than a Credit Card. G02 - Behavioral Finance: Underlying Principles. de Mel et al. G24 - Investment Banking; Venture Capital; Brokerage; Ratings and Ratings Agencies. Credit Cards. The flexibility provides newcomers, such as eCommerce, the ability to scale their product portfolio as their business takes off, reducing the need to introduce Rather than adhering to a one-size-fits-all approach, flexible financing allows businesses to choose the loan amount, interest rate, and repayment duration Borrower flexibility allows for the restructuring of existing loans to better meet the borrower's financial needs. This can include changes to Flexible Loan means a Loan where the Borrower has exercisable redraw rights under the Loan. Sample 1Sample 2. Based on 1 documents. 1 When it comes to the lending side of things a loan product best suited for this type of lending would be one that allows you to have multiple loan splits The flexibility provides newcomers, such as eCommerce, the ability to scale their product portfolio as their business takes off, reducing the need to introduce Loan amount flexibility
Payday loan installment a flexible personal loan, you can minimize interest payments by Loan early payment options funds flexobility when needed and repaying them promptly. The Amuont so far demonstrate that repayment flexibility led to improvements in Lown outcomes amiunt Loan amount flexibility status without Loan amount flexibility Loxn in the default rates flexibilkty the Dabi clients, with Loan amount flexibility more modest and insignificant effects flexibilitt the Progoti borrowers. ImbensG. The key feature of an offset mortgage is the ability to reduce the interest charged by offsetting a credit balance against the mortgage debt, with interest charged based on the outstanding net debt. Payment Option ARM: What It is, How It Works Under the terms of a payment option ARM, a borrower can make lower payments on a mortgage, but his or her debt may still increase. C3 - Multiple or Simultaneous Equation Models; Multiple Variables. Home equity loans are best for those who need substantial funds for major expenses like home renovations or debt consolidation and are comfortable with the associated risks. Carter , M. D86 - Economics of Contract: Theory. Spending money is pretty much inevitable. A longer repayment term can mean lower monthly payments, which can be easier on your budget. The main advantage of an overdraft is its flexibility; you only borrow what you need now, and interest is typically charged on the overdrawn amount only. C11 - Bayesian Analysis: General. Mortgage Loan shall have the meaning assigned to such term in the recitals. The flexibility provides newcomers, such as eCommerce, the ability to scale their product portfolio as their business takes off, reducing the need to introduce Rather than adhering to a one-size-fits-all approach, flexible financing allows businesses to choose the loan amount, interest rate, and repayment duration Borrower flexibility allows for the restructuring of existing loans to better meet the borrower's financial needs. This can include changes to These loans are flexible because the interest rate is lower and the monthly payment is smaller. You can choose how long you want to make payments, how much you' Loan flexibility allows borrowers to withdraw only the amount of money they actually need, instead of a pre-packaged loan amount. This The regular product BRAC offers has a month loan repayment cycle with monthly installments of equal size. By contrast, the flexible contract allows borrowers Loan amount flexibility
Lona 5 Low-interest rate financing the impact anount client retention and default for flexibllity Loan amount flexibility borrowers. E61 - Policy Objectives; Policy Designs and Consistency; Policy Loan amount flexibility. Flexibiliyy earn a commission from affiliate partners on many offers and links. D29 - Other. Also, consider the loan term length, as it impacts your monthly payments and total interest cost. D5 - General Equilibrium and Disequilibrium. People readiness - preparing the wider business on newly implemented technology, products and service processes. Borrowers are approved for a specific loan amount, and additional borrowing requires a new loan application. The main advantage of an overdraft is its flexibility; you only borrow what you need now, and interest is typically charged on the overdrawn amount only. There was usually a limit, or cap, on the amount that the monthly minimum payment could increase from year to year. A customer is given a credit line worth a certain amount. Nevertheless, the flexible contract that we evaluate should be interpreted as comparing the effects of introducing explicit flexibility in the form of allowing 2 monthly repayments to be delayed at no cost to the borrower relative to any de facto flexibility that BRAC already provided. In this section, we discuss the interpretation of the empirical results in light of our theoretical framework and consider alternative explanations. The flexibility provides newcomers, such as eCommerce, the ability to scale their product portfolio as their business takes off, reducing the need to introduce Rather than adhering to a one-size-fits-all approach, flexible financing allows businesses to choose the loan amount, interest rate, and repayment duration Borrower flexibility allows for the restructuring of existing loans to better meet the borrower's financial needs. This can include changes to The flexibility you get with a personal loan could come back to bite you amount of debt means having to factor ongoing payments into your Online lenders and traditional banks offer lines of credit, and it's a great tool to have available if you want a more flexible financing plan phimxes.info › Blogs Loan amount flexibility

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Personal Loans with Flexible Terms

Loan amount flexibility - It means striking a healthy balance between planning for today and the future, explains Ashley Russo, a financial advisor for Northwestern Mutual. "You give The flexibility provides newcomers, such as eCommerce, the ability to scale their product portfolio as their business takes off, reducing the need to introduce Rather than adhering to a one-size-fits-all approach, flexible financing allows businesses to choose the loan amount, interest rate, and repayment duration Borrower flexibility allows for the restructuring of existing loans to better meet the borrower's financial needs. This can include changes to

Holmström and Tirole, , emphasizes the capacity to restructure financing, hoard reserves, and hedge against risk to facilitate unexpected changes in cash flows or investment opportunities, especially in a volatile business environment. Our financial contracting model illustrates how repayment flexibility affects credit and insurance constraints as compared to the standard debt contract.

We also discuss how the theory extends to account for entrepreneurial ability, other contractual obligations, and selection into borrowing. Formal proofs are in Section A. The entrepreneur can finance a fixed investment I at date 1 using either a liquid short-term or an illiquid long-term technology.

In periods 1 and 3, she also receives income y to meet any remaining needs. Credit is limited as repayment is imperfectly enforceable. Free market entry ensures all surplus goes to the borrower, subject to incentive compatibility.

With the addition of a repayment burden, the entrepreneur also enters an informal risk-sharing scheme to cover consumption, reinvestment, and repayment in case of a return shortfall in period 2.

The set-up incorporates our two main mechanisms. To capture the credit-constraint mechanism, we rely on the conventional idea that moral hazard at the repayment stage gives rise to credit rationing of poor entrepreneurs.

Repayment vouchers reduce this need, allowing poor borrowers to allocate more funds for investment which relaxes the credit constraint. To capture the insurance-constraint mechanism, entrepreneurs choose between a safe liquid and a risky illiquid investment.

By insuring against costly liquidation to repay the loan , the vouchers alleviate the insurance constraint and facilitate investment in riskier illiquid assets. To differentiate the credit from the insurance mechanism, we view constraints related to the initial investment as distinct from those tied to managing a state-contingent shock later in the loan cycle.

While credit constraints might prevent the investment from taking place, insurance constraints could result in an inability to hedge against future income loss risks. However, a funds shortage is the common friction underlying both constraints.

By assuming constrained savings, we illustrate how the standard payment obligation limits the entrepreneur when no other means of insurance is available. Thus, a negative period-2 shock forces the entrepreneur to either not reinvest the returns from the liquid project or liquidate if invested in the illiquid technology.

Next, we analyse each contract standard and flexible to understand how credit and insurance market imperfections affect investment.

The analysis, grouped by the completeness of the informal insurance market, starts with the standard contract. Without informal risk pooling, a wealth-constrained entrepreneur opts for the safer technology, as the expected benefit of avoiding intermediate period liquidation exceeds the final period gain from the riskier illiquid project.

In Supplementary Appendix A. The entrepreneur pays the lender if the residual return after repaying exceeds the benefit from diverting all resources. The entrepreneur only repays in the second period if she does not plan to default in the third.

The following proposition summarizes our first result. The large repayment obligation would yield a residual return below the payoff from diverting all resources. If the entrepreneur chooses the liquid project, the voucher enables reinvestment of project proceeds at date 2, even under the low-return realization.

If she invests in the illiquid technology, she avoids the intermediate period liquidation risk and fully benefits from the high-return project. Unlike above, there is only one relevant incentive constraint to consider.

In the final period, the temptation to divert all resources is resisted in favour of repaying the full loan if. Since vouchers increase the discounted project value, Proposition 2 also characterizes the outcome when both credit contracts are offered simultaneously.

Repayment flexibility raises the return to both technologies, but in different ways. Vouchers alleviate the insurance constraint by eliminating the liquidation risk for the illiquid project, and they free up working capital for reinvestment in the liquid technology.

Two opposing forces are at play. On one hand, vouchers eliminate the need to save for the first repayment, freeing more funds for the initial investment. Additionally, the gross return to honouring the contract is higher with the riskier project.

Both effects increase the value of investment over diversion, making lending to poorer borrowers incentive compatible. Lastly, while all borrowers take up the vouchers, they are indifferent between using them and adhering to the standard contract upon a positive period-2 realization.

Essentially, vouchers offer an option value that protects entrepreneurs against future unforeseen fluctuations. The subsequent corollary collects these additional results. With a complete risk market and the standard contract on offer, ex-post risk pooling eliminates the liquidation risk, leading the entrepreneur to select the illiquid project.

where I γ ¯ is the expected period-2 return under risk pooling. This condition holds if the savings from postponing the first repayment outweigh the increased diversion cost due to the higher repayment burden.

However, if ability and investment capital are complements, then more able entrepreneurs will have a higher productivity for a given level of assets. Since vouchers ease the credit constraint, the return to relaxing this constraint is higher for entrepreneurs of greater ability the formal argument is detailed in Supplementary Appendix A.

We have so far assumed that the loan payment is the primary obligation. However, there could be other commitments on top of the repayment , such as recurrent costs.

Particularly, larger firms are often committed to periodic expenses like rent, utilities, and salaries. While vouchers release liquidity that can be reinvested in the safe project, the net gain from introducing more flexibility is reduced, especially if the return to the liquid technology is low.

In the basic model, vouchers provide an insurance mechanism, even in the context of universal risk neutrality. To explore how repayment flexibility affects the selection of individuals into borrowing along the risk dimension, we modify the model to incorporate risk aversion.

In line with our empirical setting, we assume a smaller self-financed project is available, which appeals to less risk-averse individuals interested in business expansion and thus, in need of external credit. While it attracts clients deterred by the risk of existing investment technologies, it also appeals to borrowers who find the large illiquid project too risky and the large liquid project too safe.

We start with the case when the loan payment is the key outstanding obligation Panel A. With complete credit and insurance markets row 4 , repayment vouchers have no impact on outcomes. Notes: The table summarizes the predictions of the theoretical model, conditional on the different market imperfections.

a In contrast to row 1 of Panel A, the increase in risky investment in row 3 is confined to poor borrowers. b Contrary to row 1 of Panel B, the increase in safe investment in row 3 is limited to poor borrowers. We then consider the case when other contractual obligations are important Panel B.

The theory suggests that vouchers lead credit and risk-rationed firms to boost their safe investments row 1. While flexibility still benefits able entrepreneurs, poorer individuals may not gain due to the low investment return. If insurance provision is imperfect row 2 , the theory predicts a rise in the safe investment.

Similar to Panel A, risk aversion can induce borrower selection rows 1 and 2. Vouchers benefit poor and high-ability entrepreneurs now making safe investments if only credit constraints bind row 3.

With well-functioning markets, vouchers have no effect row 4. A key prediction is that increased risk taking is the single most important response if entrepreneurs are limited by imperfect risk markets.

However, the theory also suggests that if firms have other contractual obligations beyond the loan payment, repayment flexibility alone may not increase risk taking. We use this framework to structure our empirical analysis and interpret the results in the subsequent sections. Our study is set in Bangladesh where our partner, BRAC, is one of the main providers of microfinance services.

tailoring, small retail shops, poultry and livestock rearing, and carpentry. The average size of a Dabi loan is nominal USD range between and 1, Currently, BRAC has 4 million Dabi borrowers in Bangladesh. They require collateral of equal value to the loan and a guarantor.

We collaborated with BRAC to implement a pilot assessing the viability of a flexible loan product. The flexible contract allowed borrowers to delay up to 2 repayments within their loan cycle through the use of repayment vouchers. BRAC decided to offer the option to borrow under the flexible contract to Dabi and Progoti clients with good credit histories.

The eligible clients were selected by credit officers at the branch office level on the basis of having no defaults and few or no arrears. Under the flexible contract, borrowers had 2 vouchers that enabled them to postpone 2 monthly repayments in their loan cycle. On the day of the repayment, borrowers could present the voucher thereby postponing the repayment and extending the loan cycle.

Specifically, by extending the cycle to 14 instead of 12 months the borrowers had 2 months during which they were not required to make any payments to BRAC. For example, if borrowers skipped the first two installments, the repayments started in month 3 and continued up to month 14 corresponding to a contract that provides a 2-month grace period.

If clients decided to use their vouchers to avoid any other installment s , the repayment in that month would be skipped and the full loan cycle was extended by an additional month.

Hence, the contract provided the borrowers with full flexibility to tailor-make their loan cycle according to their expected and unexpected cash-flow needs they were still limited to delaying no more than 2 repayments.

Moreover, if borrowers wanted, they could skip 2 repayments and pay up their remaining balance within the 12th month, thus keeping the length of the loan cycle unchanged. As such, the vouchers offered considerable payment flexibility.

To evaluate the effects of the new loan contract, we randomized the introduction of the flexible loan at the BRAC branch office level.

The typical branch office covers an area of a roughly 6-km radius with Progoti and nearly 1, Dabi borrowers. BRAC selected fifty branches for the study and credit officers in each branch identified Dabi and Progoti borrowers that they deemed eligible for the flexible loan.

BRAC subsequently provided us with a list of the eligible clients in each branch. From this list, we randomly sampled 2, eligible borrowers; 1, Dabi and 1, Progoti clients. We also obtained a list of all ineligible clients in the same 50 branches.

In addition to eligible BRAC clients, we collected information on a representative sample of SMEs independent of their borrowing status with BRAC. For this, we first conducted a census within the geographic location of each BRAC branch office by going door-to-door, capturing a comprehensive listing of all SMEs operating in selected sectors in the study branches.

The objective was to identify microenterprises with fewer than 10 workers operating in light manufacturing and retail. These characteristics were chosen to make them comparable with potential BRAC borrowers.

The baseline survey for our two samples was conducted between January and June After the baseline, we randomly selected half of the 50 branches as treatment and the rest as control. The randomization was stratified by district 15 randomization strata , each containing 2—5 of the branch offices in our study.

Figure 2 shows the locations of the BRAC branches included and their randomization status. The flexible loan product was launched in mid-August By the end of September , the intervention had been introduced in all branches. Immediately following the product launch, we collaborated with BRAC to implement an information campaign in the treatment branches.

Its goal was to ensure that information regarding the new loan that BRAC was piloting reached the firms in the SME sample. During these phone calls, the terms of the new loan product were explained; and ii leaflets, describing the same information, delivered by BRAC credit officers to the firms in the SME sample and to firms in the eligible-borrower sample.

Notes: The map shows the locations of the BRAC branch offices that were part of the study. The treatment branches are represented with triangles, while the control branches are denoted with squares. Approximately 1 year after the baseline, between May and July , we implemented the first follow-up survey the mid-line.

Since the intervention was launched in August , the effects at mid-line capture short-run impacts 8—10 months after treatment started.

Nearly 1 year after the mid-line and 2 years after the baseline , we conducted the endline survey. Finally, to measure local rainfall shocks, we use monthly rainfall data at 0. Supplementary Table A. For all of the outcome variables we study as well as other key characteristics, Supplementary Tables A.

In particular, column 3 shows the standard difference, column 4 the randomization inference p -values, and column 5 reports the normalized difference Imbens and Wooldridge, With the exception of two characteristics out of 31 , none of the baseline differences are statistically significant at conventional levels and the normalized differences are smaller than one-fourth of the combined sample variation.

Hence, we conclude that the randomization was successful in achieving baseline balance in key observable characteristics.

In Supplementary Table A. The attrition rates are balanced by treatment status in both follow-up surveys.

Thus, it is unlikely that differential attrition drives the treatment effects we find in the empirical analysis. To identify the effects of the flexible loan contract on eligible borrowers, we estimate an analysis of covariance ANCOVA model McKenzie, of the form:.

Since our randomization was conducted at the branch office level, we cluster standard errors by BRAC branch office 50 clusters. The randomization inference p -values report the percentile of the coefficients found under actual treatment in the distribution of coefficients identified under the alternative treatment assignments Young, The parameter of interest is β , the average difference between treatment and control observations at mid- and endline.

Under the assumption that the control observations constitute a valid counterfactual for the treatment sample, this identifies the causal effect of the offer of the flexible loan contract to eligible client i.

In other words, this is the ITT estimate. Table 2 presents the results for the Dabi Panel A and Progoti clients Panel B , respectively. Compared to this, the introduction of repayment flexibility increased borrowing from BRAC by 6.

For Progoti clients, the flexible loan offer increased take up from BRAC by 2 ppt , but this effect is imprecisely estimated. Notes: The table presents the treatment effects on loans and transfers of eligible Dabi and Progoti borrowers. All regressions control for the baseline value of the outcome, an indicator variable for the endline survey and district strata fixed effects.

The regressions are ordinary least squares OLS regressions based on specification 4. Randomization inference p -values of the null hypothesis of no effect are provided in square brackets.

In column 2 , the dependent variable is the principal amount in USD PPP of the BRAC loan the respondent had at the mid-line or endline survey. Non-BRAC loan value is the monetary value in USD PPP of all formal and informal loans taken from other lenders banks, MFIs other than BRAC, informal money-lenders or relatives and friends during the past 12 months.

Net borrowing or transfers is the monetary value in USD PPP of net borrowing loans borrowed minus loans lent and net tranfers tranfers received minus transfers given combined. The rest of Table 2 explores other outcomes related to credit and transfers.

Starting with Dabi , while the treatment decreased the likelihood of having a non-BRAC loan by 4 ppt [column 3 ], the impact on the intensive margin is small and imprecisely estimated [column 4 ], barring any definitive conclusions on substitution effects away from non-BRAC lenders toward BRAC.

Eligible Dabi borrowers also receive more informal transfers from their social networks with the point estimate similar in size to the effect on the BRAC loan , albeit insignificantly so [column 5 ].

Column 6 examines transfers and loans provided to the social network. The last column presents the effect on an aggregate index that combines the 7 indicators related to the credit market outcomes of the Dabi clients.

We find that the aggregate index is significantly higher by 0. By contrast, Panel B indicates that the impact on the eligible Progoti borrowers is insignificant [with the exception of one outcome: the likelihood of having a non-BRAC loan in column 3 ].

As the aggregate index in column 8 is indistinguishable from zero, we conclude that the treatment did not significantly affect the credit market outcomes of the eligible Progoti clients.

Next, we examine the impact of repayment flexibility on a range of business outcomes. The upper panel of Table 3 shows effects for the eligible Dabi clients, starting with business ownership in column 1.

In terms of inputs, the treated Dabi borrowers invest significantly more in their business assets but not in labour. We do not find any significant effect in terms of labour inputs number of workers, business operating hours, and hours worked by the business owner.

Column 6 shows that treatment raised revenues by 28, USD PPP annually relative to the control sample. Eligible clients also had higher costs which is likely related to the larger investments in their business capital e. cost of purchasing tools, machines, or inventories.

Column 10 shows that Dabi businesses in the treatment group had more volatile revenues. As a proxy for volatility, we use the range of monthly revenues. Finally, column 10 shows that the aggregate index is up by 0. Overall, these findings suggest that the flexible contract not only led to more business activity and greater business investments, but also increased the volatility of the monthly business revenues among the Dabi borrowers.

In particular, there are no significant effects on any of the business outcomes except for the number of workers, and the overall impact on the aggregate index in column 11 is close to zero and insignificant.

Notes: The table presents the treatment effects on business outcomes of eligible Dabi and Progoti borrowers. Data comes from the mid-line and endline surveys. The regressions are OLS regressions based on specification 4. Business owner is a dummy variable equal to one if the respondent owns a business.

Business assets is the monetary value in USD PPP of business assets tools, machinery, furniture, vehicle and inventories at the time of the survey. Number of workers is the number of workers other than household members who work in the business on a typical working day. Business hours is the number of hours that the enterprise was in operation over the last 12 months.

Revenues is the monetary value in USD PPP of sold products or delivered services of the business over the last 12 months.

Costs is the monetary value in USD PPP of the total amount the enterprise spent on personnel expenses, machines, tools, equipment, space, transportation, electricity, fuel for machines, and total purchase of stock over the last 12 months. Profits annual is profit in USD PPP of the business over the last 12 months.

Profits month is profit in USD PPP of the business over the month preceding the survey. Range of revenues is the difference between the level of revenues during the worst month in terms of sales and the level of revenues during the best month in terms of sales during the past year.

If the respondent reported that revenues did not fluctuate throughout the year, the range of revenues is set equal to zero. The third and final set of outcomes are related to the socio-economic status of the eligible borrowers.

Given that land ownership is a key indicator of socio-economic status in rural Bangladesh, this is an important sign that the status of the eligible Dabi clients improved as a result of the intervention.

The aggregate index in column 6 also shows a significant increase of 0. In contrast to the Dabi borrowers, there are no significant effects on any of the outcomes nor on the aggregate index for the Progoti clients Panel B of Table 4.

Notes: The table presents the treatment effects on indicators of household socio-economic status outcomes of eligible Dabi and Progoti borrowers. All regressions control for the baseline value of the outcome, an indicator variable for the endline survey and district randomization strata fixed effects.

Consumption per capita is the monetary value in USD PPP of the total household expenditure per capita in PPP USD over the last 12 months divided by the household size on consumption measures.

Size of land wwned is the amount in decimals of land owned by the household excluding the homestead. Figure 3 provides a visual summary of the treatment impact on the eligible clients. It plots the ITT effects on standardized indicators related to the three families of outcomes we study credit market, business, and household economic status.

All the Dabi -related outcomes shown in Figure 3 A , with the exception of non-BRAC loan value and per-capita consumption expenditure, are positively affected, with a majority of them being statistically significant. In particular, we observe large effects on business revenues 0.

Overall, we do not find evidence of a significant average impact on the outcomes of the Progoti clients. ITT effects: A effects on Dabi borrowers and B effects on Progoti borrowers.

The sample includes eligible Dabi borrowers in Panel A; and eligible Progoti clients in Panel B. Standard errors are clustered at the BRAC branch office level. A possible concern with the large treatment effects detected among the Dabi clients is whether the results are driven by some peculiarity of our context or the eligible sample itself.

To assess this, we compare our estimates to the treatment effects found in Field et al. Even though the product we examine is quite different, allowing borrowers to manage payments freely over the loan cycle in a state-contingent manner, Field et al.

This builds confidence in the external validity of our findings and suggests that the large treatment effects are not driven by some special feature of our context or sample. In particular, we test if the repayment rates of the eligible clients and their demand for BRAC loans are affected by the introduction of the flexible loan contract.

Table 5 reports the impact on client retention and default for the eligible borrowers. Column 1 shows that treated Dabi clients are 6. The effect on Progoti borrowers is also negative but imprecisely estimated.

We first present the official default classification used by BRAC [column 2 ] and then assess how repayments change depending on the time elapsed since the start of the contract [columns 3 and 4 ] or since the end of the loan cycle [columns 5 — 7 ].

Specifically, column 2 reports the effect on the official default rate defined as the likelihood of not having repaid the loan by the end of the loan cycle. In the treatment branches, they are 1. The corresponding impact is close to zero for the Progoti clients. Notes: The table presents the treatment effects on retention and loan repayment of eligible Dabi and Progoti borrowers.

Borrower no longer with BRAC is a dummy variable taking the value of one if the client has repaid the loan and not taken out a new one as opposed to having a current loan or having defaulted. Default is a dummy variable taking the value of one if the borrower was categorized by the credit officer as not having repaid the loan by the end of the loan cycle.

Loan not fully paid in 12 months is a dummy variable taking the value of one if the borrower does not repay the full loan by the end of the loan cycle 12 months. Loan not fully paid by the end of the loan cycle is a dummy variable taking the value of one if the borrower does not repay the full loan within the 14th month in the treatment branches and by the 12th month in the control branches.

Full loan not repaid within 2 6 [12] months after the end of the loan cycle are dummy variables taking the value of one if the borrower did not repay the full loan by the second sixth [twelfth] month after the end of the loan cycle.

For eligible clients in treatment branches, the end of the loan cycle is computed starting 2 months after the expected last collection date; in control branches from the expected last collection date see Supplementary Appendix B for further details.

Next, we examine the likelihood that the loan was not fully paid in 12 months to quantify the proportion of borrowers who extended the loan by using at least one voucher. Treated Dabi borrowers are 8. Similarly, we see a 5.

Column 4 investigates the actual end of the loan cycle, defined as 12 months in the control and 14 months in the treatment branches. Hence, by the end of the contract, the de facto default rate was significantly lower in the treatment branches. The remaining columns report the effects on the probability of not having repaid the full loan within 2, 6, and 12 months [columns 5 , 6 , and 7 ] after the end of the loan cycle as defined in column 4.

Eligible Dabi clients are 1. While imprecisely estimated, the effect is similar in magnitude to the default indicator [column 2 ] used by BRAC.

Overall, the patterns imply that the flexible contract improved repayment among the eligible clients in the treatment branches, at least in the short run, while loan repayment rates were more similar in the treatment and control groups in the longer term.

The results so far demonstrate that repayment flexibility led to improvements in business outcomes and socio-economic status without an increase in the default rates for the Dabi clients, with much more modest and insignificant effects for the Progoti borrowers.

Viewed through the lens of our model, these findings provide some initial evidence of the mechanisms at play. The relatively large impact experienced by the Dabi clients is consistent with increased risk taking because of imperfect insurance markets and, possibly, credit rationing.

By contrast, the absence of discernible effects for Progoti either implies that these firms were unconstrained or that they face too much risk even with the vouchers due to other external commitments.

In the latter case, the model shows that the flexible contract induces safer low-return investments, again owing to imperfect insurance, binding credit constraints, or an incompleteness in both markets.

To shed light on the channels, we now test more directly for the presence of insurance and credit rationing. According to our theory, repayment flexibility should increase risk taking if insurance markets are imperfect and the loan payment is the main outstanding obligation.

To examine this link empirically, we explore four pieces of evidence. First, an implication of greater risk taking is that some firms will flourish while others, if unsuccessful, may fail.

The finding that treatment increases sales volatility [column 10 , Table 3 ] is supportive of this, at least for the sample of eligible Dabi clients. To probe the idea further, we study the heterogeneity of the treatment effects.

Average treatment effects in terms of business growth and household economic wellbeing may mask considerable heterogeneity that can tell us something more about whether the flexible contract induces risk taking, resulting in success as well as failure. To explore this, we estimate the following quantile treatment effect QTE specification:.

where Δ y i t is the change in the outcome of interest for individual i at survey t mid- or endline relative to the baseline and the rest of the parameters are defined as in equation 4 above.

One caveat to bear in mind is that, due to the small sample size, we lack the power to estimate precise treatment effects across the distribution. Figure 4 displays the results for the eligible Dabi clients. The QTE estimates reveal substantial heterogeneity in the effects of the flexible contract.

While we observe a positive impact on business asset value at any centile above the median Figure 4 A , the treatment effect at the lowest centile is negative although insignificant. The pattern is even more striking when we study the QTEs on business revenues and household labour income Figure 4 B and C.

While most treated clients raise their revenue and household income, those at the lower end of the distribution do worse relative to the control group. As an alternative way of exploring the effects throughout the distribution, we also plot the cumulative distribution function CDF of log household income in Figure 4 D.

This is consistent with repayment flexibility leading to greater risk taking among treated clients, causing some households in the treatment group to lose out relative to control while others do better. By contrast, when we conduct the same analysis for the Progoti borrowers, we find no evidence of any heterogeneity.

Heterogeneity of treatment effects among Dabi borrowers: A business assets value; B business revenues annual ; C household income annual ; and D CDF of Log household income. Notes: The sample includes eligible Dabi borrowers.

Panels A—C plot QTEs estimated according to specification 5. Each specification controls for the survey wave. Values are in PPP USD. Panel D plots the CDF of log household income plus 1 in the treatment and control samples.

Second, we estimate the heterogeneity of the treatment effect with respect to the uncertainty of the local business environment. As implied by the model, the flexible contract should facilitate riskier investments more exposed to aggregate uncertainty in the case insurance constraints bind.

As an indicator of business uncertainty, we rely on the baseline data from the SME sample. Using this information, we calculate the average coefficient of variation CV of expected demand growth among SME owners within a cluster BRAC branch office and divide the clusters into two groups: those where the average CV of expected demand growth is high above median or low below median at baseline.

If the flexible contract helps eligible borrowers undertake riskier investments, we expect the effects to be larger in clusters with greater demand uncertainty.

Table 6 shows that this is indeed the case among the Dabi borrowers. Moreover, the impact on profits seems to be concentrated among borrowers located in clusters with higher demand growth uncertainty the interaction terms in columns 4 and 5 are large and positive though somewhat imprecise.

This implies that among the Dabi borrowers, repayment flexibility helped borrowers particularly in markets with high demand uncertainty at baseline.

Importantly, the corresponding analysis for the Progoti clients shows no detectable heterogeneity. Notes: The table presents the heterogeneity of the treatment effects on key business outcomes of the eligible Dabi borrowers with respect to uncertainty of demand growth at baseline among local businesses.

demand uncertainty. Third, in addition to expectations about future demand, the realization of actual shocks should be particularly important for borrowers who take on more risk. To test this, we explore variation in local demand shocks caused by changes in agricultural productivity.

In addition, Bangladesh is one of the most climate-vulnerable countries in the world, with droughts and heavy floods having a strong negative effect on rice yields and subsequent income Khandker, ; Bandyopadhyay and Skoufias, ; Rahman et al.

To capture sharp changes to rice productivity and thus to the local economy, we explore the occurrence of heavy floods during the growing season December to May of the most important rice variety, Boro.

To construct the shocks, we compute the rainfall distribution for a 25 km radius from the centroid of each branch separately over the period — A negative shock is proxied by a one standard deviation increase in rainfall within the 25 km buffer zone.

To match our mid- and endline survey, collected in May through August of and , we measure shocks in December to May in and in relative their historical distribution. Importantly, this implies that the extreme floods occur unexpectedly after the announcement of the flexible credit contract offer in September In Table 7 , we study the riskiness of the business activity by interacting the rain shock with the treatment indicator as well as adding an independent shock variable.

A negative coefficient on the interaction term implies that activities undertaken with access to vouchers were more sensitive to demand shocks as captured by the undesirable rainfall shock.

The effect of the shock itself should also be negative as it lowers overall demand. We have a negative and significant interaction term for business revenues, costs, and profits. Specifically, the treatment effect on revenues is 38, USD PPP in the absence of the negative rainfall shock, while the impact is only 7, USD PPP and imprecisely estimated for borrowers exposed to the shock.

This is in line with the shock lowering sales in general. In treatment branches, the effect of the rainfall shock almost doubles. Similarly, the responsiveness is also sizable in terms of costs and profits. A similar pattern is observed for monthly profits, but the interaction term of treatment with the rainfall shock is imprecisely estimated at conventional levels.

Notes: The table presents the heterogeneity of the treatment effects on key business outcomes of the eligible Dabi borrowers with respect to the likelihood of having experienced an excessive rainfall shock.

The geographical area over which the rainfall amount was calculated corresponds to a 25 km radius around the branch where the firm is located. All regressions control for the baseline value of the outcome, an indicator variable for the endline survey, district-by-survey year fixed effects, and flexible controls for the probability of rain.

Overall, the interaction effect with the negative rainfall shock entirely removes the positive impact of treatment on revenues, costs, and profits which in absence of floods is significantly greater among Dabi clients in the treatment group relative to control.

We also see a negative effect on the extensive margin, as fewer individuals are business owners in treated branches who experienced the negative rainfall realization. Together, these findings imply that Dabi clients with access to the flexible contract shift their activities to take on more demand-related risk.

Fourth, the theory is based on the idea that the flexible contract raises investments in illiquid and thus riskier business assets if the insurance market is incomplete. We begin by breaking down this effect for the Dabi borrowers into 6 different categories: tools and utensils, furniture, machines, vehicles, inventories, and buildings.

While Panel A of Table 8 shows that treatment and control were as likely to own an asset within each group, Panel B reveals that the aggregate value increased across the majority of categories.

Specifically, treatment increased the ownership of tools and utensils by 73 USD PPP [column 1 ], furniture by 57 USD PPP [column 2 ], machinery by USD PPP [column 3 ], and inventories by 1, USD PPP [column 5 ]. The point estimates for vehicles and buildings are negative but imprecisely estimated.

Notes: The table presents the treatment effects on business assets of the eligible Dabi borrowers. Panel A reports estimates of the extensive margin likelihood of owning assets of each type , Panel B on the intensive margin monetary value of assets owned of each type.

In Panel C, the dependent variable is the number of distinct types of assets owned within each asset category, and in Panel D the outcome is the per unit value of assets of each type owned by the firm. In Figure 5 , we plot the percentage of the asset value that respondents reported they would lose in case of a rapid sale conditional on having a given type of asset.

While these findings need to be interpreted with some caution with data collected 5 years after the baseline survey and during the Covid pandemic , the evidence suggests that business assets in general are difficult to liquidate in this setting and, as such, investing in them entails substantial risk for small businesses.

Notes: The figure shows the liquidity of business assets owned by eligible borrowers Dabi or Progoti by category, and overall. The information comes from a phone survey that was conducted in May The figure plots the mean level for the percentage of value lost if a firm has to liquidate assets in 1 day as opposed to 1 month conditional on having any assets of a given type.

Returning to Table 8 , in Panel C we explore the variety of business assets held by the eligible Dabi clients by counting the number of different asset types within tools and utensils, furniture, machines, and vehicles. Finally, Panel D of Table 8 reports differences in terms of the unit value of the business assets held in each category.

To the extent that the wider variety of inputs captures increased experimentation with the production process Panel C and that these possibly less common inputs carry a higher unit price Panel D , it is a further indication of more risk taking.

While the results square well with the theoretical prediction that repayment flexibility induces risk taking, pointing to the presence of insurance rationing at least for the Dabi clients, they are open to interpretation for the Progoti borrowers.

The lack of increased risk taking among the larger firms either suggests that insurance constraints are less important to them or that too much risk remains because of other periodical external commitments, such as rent, utilities, transportation, and salaries. To investigate this last point, we compare annual recurrent costs across the Progoti and Dabi firms.

If the effects of the flexible contract are driven mainly by the credit-constraint mechanism, our model predicts that repayment flexibility should be particularly valuable to poorer and higher-ability individuals.

To study this hypothesis, we examine the heterogeneity of the treatment effects with respect to the baseline economic status and schooling level.

We use two different indicators of baseline economic status: land ownership and household income. For the Dabi sample, both measures show consistently that the treatment effects are not significantly different for respondents who had a lower economic status at baseline see Supplementary Table A.

If anything, the point estimates imply that better-off borrowers who owned land or had higher household income benefitted more, not less, from the flexible loan in terms of business profits.

Similarly, we find no consistent and significant impact of ability as proxied by schooling —see Supplementary Table A. When we estimate the same set of specifications for the Progoti clients, there is no significant heterogeneity with respect to baseline economic status see Supplementary Table A.

The lower panels of Supplementary Table A. In summary, the lack of differential treatment effects among Dabi clients, despite their larger overall impact, indicates that the effects of the flexible contract on traditional microfinance borrowers are not primarily driven by the credit mechanism.

We now turn to the question of how repayment flexibility affected the selection of individuals into borrowing at the market level.

According to our theory, to the extent the flexible contract provides insurance, it may attract more or less risk-averse borrowers. We investigate this prediction by comparing the characteristics of the firm owners that choose to borrow from BRAC in the treatment and control branches after the introduction of the flexible contract.

To test whether the introduction of the flexible loan attracted different types of borrowers in treated branches relative to control, we rely on the representative sample of SMEs. Specifically, we examine if the launch of the flexible contract in the treated branches affected the pool of microentrepreneurs that were borrowing from BRAC by mid- or endline relative to the control group.

We estimate the following model:. where y i t is an indicator for having taken a loan from BRAC for business purposes by mid- or endline, x i 0 is some characteristic of respondent i as measured at baseline, and the other parameters are defined as in specification 4 above.

In particular, we evaluate if SME owners who borrow from BRAC for their businesses are different in terms of risk aversion and entrepreneurial skills. In Table 9 , columns 2 — 9 show the main results on selection, whereas column 1 examines average take up.

Although take up increases, the estimate is noisy suggesting that the introduction of the flexible contract and the information campaign about the new loan made it no more likely that SME owners in treated branches joined BRAC relative to the control group.

However, most of the remaining columns indicate substantial evidence of selection among those drawn in. Column 2 shows that risk-averse business owners were less likely to become BRAC clients in the treatment branches.

In particular, take up of BRAC loans increased 3. In column 3 , we find that respondents who expressed an interest in opening up a new business were 8.

The next column suggests that business owners who were interested in hiring new workers are 4 ppt more likely to become BRAC clients in the treatment branches, but this effect is imprecisely estimated at conventional levels. Finally, column 7 implies that wealthier SME owners with higher land ownership were more likely to borrow from BRAC in the treatment branches.

If the effects were induced by vouchers alleviating the credit constraint, we would expect the share of less wealthy borrowers in the client pool to increase with the introduction of repayment flexibility. Importantly, the last two columns show that the effects on risk aversion and the entrepreneurship index are insensitive to the inclusion of land size as a proxy for wealth.

Together, these estimates are in line with the predictions of our theory. In the model, the degree of risk aversion in the resulting borrower pool declines if individuals selecting in under repayment flexibility predominately belongs to the group of less risk-averse firm owners who wants to expand their operations.

Notes: The table shows the results of estimating specification 6 where the dependent variable is an indicator for having taken any BRAC loan in the last 12 months for the business.

Profit per worker is the baseline level of the profit of the business over the last 12 months divided by the number of workers, including the business owner, at baseline.

The variable is then standardized by subtracting the sample mean and dividing by the sample standard deviation. Entrepreneurship Index is the first principal component of the variables Risk averse , Wants to start a new business , Wants to hire new workers , and Profit per Worker.

Size of land wwned is the amount of land owned by the household excluding the homestead at baseline, standardized by subtracting the sample mean and dividing by the sample standard deviation.

In Section A of the Supplementary Appendix , we assess the robustness of these findings. We show that the observable characteristics x i 0 in specification 6 do not predict differential demand for BRAC loans across treatment and control branches at baseline Supplementary Table A. Overall, the results in Table 9 suggest that the flexible repayment contract is particularly attractive for less risk-averse borrowers who are willing to take risks in order to grow their businesses.

In this section, we discuss the interpretation of the empirical results in light of our theoretical framework and consider alternative explanations.

We then test for possible spillover effects that the flexible loan offer may have had on borrowers not eligible to receive the contract. It allows borrowers to access financing, while also ensuring ease of repayment. For lenders, flexible loans and customised repayment plans result in more successful collections.

Eldad Tamir. Rajat Deshpande. Quentin Colmant. Blog article. News in your inbox For Finextra's free daily newsletter, breaking news and flashes and weekly job board. Sign Up. Channels Start ups Financial inclusion.

Fintech World. External what does this mean? This content is provided by an external author without editing by Finextra. It expresses the views and opinions of the author. The Future of Borrowing: Mutual Gains Through Credit Flexibility for Lenders and Borrowers 23 November 0.

Why loan flexibility is good for borrowers 1. Report abuse. Join the discussion. Rajat Deshpande CEO and Co- founder FinBox. Blog posts 4. More from Rajat. Blog post Fintech innovation and startups Small loans, big impact: Digital nano-loans as enablers of financial empowerment 05 Feb 0.

Blog post Fintech World The Future of Borrowing: Mutual Gains Through Credit Flexibility for Lenders and Borrowers 23 Nov 0. They offer the convenience of immediate access to funds and can be ideal for short-term financing needs.

Credit cards often come with rewards and benefits, such as cashback or travel points, which can be an added advantage.

However, they typically have higher interest rates than personal loans, especially when balances are carried monthly. Home equity loans are a significant alternative, especially for homeowners. They allow you to borrow against the equity in your home.

These loans often come with lower interest rates than personal loans or credit cards, making them a cost-effective option for larger expenses. The loan amount is usually higher, depending on the equity in the home.

Home equity loans are best for those who need substantial funds for major expenses like home renovations or debt consolidation and are comfortable with the associated risks. An overdraft facility with your bank is another option. It allows you to spend more money than you have in your account up to a certain limit, providing a cushion for short-term cash flow shortfalls.

Overdrafts can be useful for covering unexpected expenses without needing a formal loan application. The main advantage of an overdraft is its flexibility; you only borrow what you need now, and interest is typically charged on the overdrawn amount only.

This option is best suited for those with a temporary need for extra funds and who can quickly return to a positive balance. Borrowing from friends and family is a more informal alternative to personal loans.

This option can be attractive due to potentially lower or no interest rates and more flexible repayment terms. It can also be quicker and less bureaucratic than dealing with financial institutions. However, borrowing from those close to you is risky, especially around relationships.

This method is best for those with a strong, trustworthy relationship with the lender and confidence to repay the loan without causing tension. Personal loans are a powerful financial tool when utilized judiciously. They encapsulate the essence of what is a benefit of obtaining a personal loan by offering unparalleled flexibility, convenience, and the potential to influence your credit score positively.

When your financial needs align with the attributes of a personal loan, it becomes a wise and strategic financial decision, capable of enhancing your financial health and meeting your specific monetary goals. As you navigate the world of personal finance , staying informed and updated is key.

At EduCounting , we offer you a treasure trove of valuable information, offering expert advice, the latest trends, and practical strategies to help you manage your finances effectively. Key factors such as your income, credit score, and debt-to-income ratio are crucial in determining how much you can borrow.

This range ensures that personal loans can cater to a wide variety of financial needs, from minor expenses to substantial investments. Some lenders charge these fees to compensate for the interest they lose when a loan is paid off before the end of its term.

A loan inquiry, also known as a hard credit check, can temporarily lower your credit score by a few points. However, this impact is generally small and short-lived, with your score typically rebounding within a few months if no new credit obligations are undertaken.

Based on information from myFICO, credit scores are affected by hard inquiries only if they have occurred within the past 12 months. In most cases, the influence of one hard inquiry is usually less than five points.

Individuals might use a personal loan for various reasons, such as consolidating high-interest debt, financing large purchases or home improvements, covering unexpected expenses, or funding major life events.

Personal loans offer the flexibility to use funds for diverse needs, often with lower interest rates than credit cards. Podcast Videos About Blog Contact Menu.

Search Close this search box. Join The Course. What is a Benefit of Obtaining a Personal Loan for Financial Flexibility? Ben Jones. Table of Contents. Image Courtesy: marketresearchfuture.

The 7 Benefits of Personal Loans. Flexible Use. Fast Funding. Easy Application Process. They Can Help Build Your Credit Score.

Better Than a Credit Card. Flexible Repayment Terms. Typically No Collateral Required. How to Decide if a Personal Loan is Right for You. Types of Loans Offered. Interest Rate and Terms. Loan Amounts Available. Customer Satisfaction. Reputation of Lender.

How to Choose the Best Personal Loan. Alternatives to Personal Loans.

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