As the holiday season begins many of you must be planning to go on vacation. While it is always wise to plan and save money for your leisure travel, there could be many situations when you cannot postpone your travel plans. Opt for travel finance if you are short of cash and have no other redeemable investments to bank on. Banks and non-banking financial companies offer travel loan, which is a kind of personal loan given for travel. While personal loans are usually unsecured loans, travel loans can be both secured and unsecured. For any amount above `2 lakh, some banks may seek guarantor or collateral. The interest rate on secured travel loans can be lower than personal loans.
How to avail
A travel loan can fund all your travel related expenses such as airfares, hotels, insurance, tour package, etc. The loan repayment terms will depend on the time span for which the loan is taken. The amount of money given as loan for foreign travel is higher as compared to domestic travel. There are special travel loan schemes available for senior citizens at preferential interest rates. Some travel loans may have destination-based criteria, which includes a package tour. Before you take a travel loan do understand the terms and conditions. Ideally, your travel loan EMIs should not exceed 40% of your net monthly income and should be repaid within a year or two. Every installment the person pays will be for principal and the interest and is deducted automatically from the bank account. The interest rate on travel loan varies between banks and could be 12-20%. With a fixed interest rate, one can budget and structure the repayment plan as per other financial commitments. To avail the loan, one has to show the source of income, details about the travel plan including visa if traveling abroad. The standard documents required are identity proof, residential proof, salary slips of the past three months, ITR document or business ownership documents for business owners. The basic criteria for availing a loan if one is a salaried person is that he should be 21-58 years, employed in a reputed organisation in the private or public sector with a two-year track record in the organisation. A self-employed person should have a three-year business record. The processing fee varies and sometimes banks can even waive off the amount depending on the credit and banking history of the customer. If the person meets all the basic formalities, then the approval is given within hours and the money is transferred to the bank account.
Other avenues to fund travel
Ideally, to fund your travel you should take out your own funds like redeeming low-yield investments such as fixed deposits and debt funds as their returns are usually lower than your interest payouts. Experts say one should not redeem equity funds to fund travel expenses as they give higher returns in the long run. One can avail loan against securities such as mutual funds or stocks. That will save on the higher interest payout for travel loans.Opt for this loan if you have enough long-term investments to be used as collateral for financing your travel. Moreover, credit cards can be used to finance your travel because of the interest-free 55-day credit period. Many credit cards offer attractive rewards and discounts on transactions in both India and abroad. However, avoid using credit card in offshore locations as they attract foreign transaction fee of up to 3.5 % of the transaction value. If one has to repay the money, he can convert the amount into equated monthly installments, which can be paid off within a specific period of time. However, the interest rate on credit card EMIs can range between 18–25% per annum. A travel loan comes with high interest cost. So, one should take such a loan if the travel is essential. Ideally, instead of a loan start planning early and create a corpus by investing in a bank recurring deposit or in debt-oriented mutual funds. That way you can systematically invest every month, earn some returns and fund your travel by redeeming your own investments.