1. Holiday season is here again: Is it wise to travel by opting for a travel loan?

Holiday season is here again: Is it wise to travel by opting for a travel loan?

The holiday season is fast approaching and it is time to travel. Many people yearn to travel to unknown places and mark the unexplored places in the world. Some travel to experience different cultures, while some travel just to take a break from their ordinary routine.

By: | Published: May 8, 2017 11:06 AM
If you do not have funds and don’t want to break any investment, then a loan becomes an attractive option.

The holiday season is fast approaching and it is time to travel. Many people yearn to travel to unknown places and mark the unexplored places in the world. Some travel to experience different cultures, while some travel just to take a break from their ordinary routine. Travelling allows one to disconnect from the stress of everyday life and rejuvenate.

However, travelling needs money. If you don’t have enough funds to travel, then taking a ‘travel loan’ to cover your travel expenses could be one of the ways to make your dream come true.

What is a travel loan?
“While there is no such thing as a travel loan, you can take out a personal loan and fulfill your dreams of traversing the globe. The end-use of a personal loan is not restricted, giving you freedom on how you use the loan amount,” says Ranjit Punja, CEO & Co-Founder, Creditmantri.

Some experts, however, say that although a travel loan is pretty much the same as a personal loan, a few financial institutions have created a specific category for the same wherein 80% of the travel costs are covered by the lender.

Thus, if you are planning to go on a vacation and looking for ways to fund your travel without maximizing your credit card spend or going broke, a travel or personal loan could be the right choice for you. Many banks and NBFCs offer personal loans to cover travel expenses, be it for a local or a round-the-globe vacation.

How to take a travel loan?
Travel loans can be secured or unsecured in nature. Like any other loan, the lender will assess income, credit rating, employment/ business details and current liabilities when determining the amount and interest rate.

“There is, however, greater restriction on the loan amount for travel. Therefore, one could also consider taking a personal loan if a larger amount of money is needed. Alternatively, one can partly fund one’s travel expenses through personal savings and use credit cards for other expenses such as booking accommodation or flight tickets,” says Manavjeet Singh, CEO & Founder, Rubique.

How much loan can be taken
As explained above, if you are taking a personal loan – which is normally the case – for meeting your travelling expenses, then you can take a bigger amount also, depending upon your income. However, if you want to go for a loan meant for travel only, then the amount as well as the terms and conditions vary between different financial institutions.

For instance, LoanTap, an online lending platform, is offering travel loans between Rs 50,000 and Rs 5 lakh, which need to be repaid over a duration of up to 12 months. “The loan application is pretty straightforward, too, and needs neither huge stacks of documents nor the borrower to report in front of a loan assessment officer. A simple online application along with PAN card, bank statement, address proof, and a couple of salary slips gets the job done. Once approved, the amount is disbursed to the beneficiary within 48 hours of the initial loan application,” says Satyam Kumar, Co-Founder, LoanTap.

On the other hand, CoinTribe, a leading online lending marketplace, is offering simplified travel loans to salaried professionals ranging from Rs 50,000 to Rs 20 lakh for an array of travel requirements. “Our platform is facilitating these travel loans with an attractive interest rate of 11.5 percent to 15 percent depending upon the borrower’s credit profile. The flexible loan tenure can range from 12 months to up to 4 years. Based on the specific requirements, the tenure can even be stretched to up to 5 years,” says Manish Chaudhari, Co-founder and Chief Risk Officer, CoinTribe.

Why a personal vacation loan can be an attractive option for a traveler?
# If you do not have funds and don’t want to break any investment, then a loan becomes an attractive option. The loan disbursal is generally quick, which means you can travel without any delay.

# You can repay your loan in easy EMIs, and you can choose a tenure that is comfortable for you.

# Personal loans are unsecured loans which means you needn’t offer any collateral as security. “This makes the whole process of loan approval easier and hassle-free. Documentation is minimal, and some lenders offer personal loans instantly (Insta loans), depending on your relationship with them,” says Punja.

# Personal loans are cheaper than credit cards and hence, more viable.

Take Precautions
However, before opting for a personal loan, you need to carefully evaluate the pro and cons before arriving at a decision. Following are some points to be kept in mind while opting for a personal loan for travel:

# Consider your borrowing needs: Do you really have to borrow? “Before getting into debt, see if you can use your savings for travel. You might not want to use your saved-up money for travelling expenses, but using your savings would only save you money that you would otherwise have used to pay for interest,” advises Punja.

# Don’t overborrow: Now that you have decided you want a loan to take care of your travel expenses, start shopping for personal loans to cover your travel expenses. Stop and ask yourself this question “What can I afford?” to prevent yourself from overborrowing which could possibly land you in a financial rut. When choosing a personal loan for travel, consider your borrowing needs.

# Ensure you have a regular source of income: If you are planning to take a break from your job to travel overseas for quite a while, then you should save the money first and use it as a hedge. You should also have an assured source of income to ensure that you pay off your monthly EMIs on time, consistently.

# Check your credit score: It is important to check your credit history and score before applying for a loan. “It is important to know where you stand. This gives you a chance to build your credit score and better your chances of loan approval. Improving your score helps you get loans at much better interest rates from lenders. A good score also helps you get access to offer from multiple lenders – giving you better choice. If you don’t have a good credit score yet, consider taking time to build your credit score before applying for any new loan accounts,” informs Punja.

What should you do?
Experts say that taking a travel loan depends on the individual borrower’s financial and personal situation. For instance, if the vacation plans are such that they can be postponed by, say, 6 months obviating the need for taking a loan, then that would obviously be a better option as you’d save money on interest.

“Taking a travel loan is concomitant to choosing short-term pleasure over long-term comfort. For a holiday of 15 days, you could end up paying EMI for 2 years… Therefore, one should carefully consider circumstances before opting for a travel loan. However, if the travel plans are such that rescheduling them would dilute the point, say in cases such as a honeymoon or a birthday vacation, then one can opt for a travel loan,” says Singh of Rubique.

No doubt, travelling gives you fresh perspective on life—the reason why many people opt to travel to newer places. However, understand that travelling doesn’t always come cheap and it requires careful planning of finances so that you don’t go broke. Happy travelling!

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