Travel loan has been gradually gaining acceptance, especially among salaried borrowers with stable jobs, because of its lucrative offerings.
Life is an experience and there is no better way than traveling to explore it. The thrill to travel is even higher when trips are unplanned; be it solo travel, a family trip or a getaway with friends. However, travel is expensive and that could mean that a large section of millennials, that constitute 47 percent of the working age population in India, can find it challenging to arrange funds for their dream vacations. This is where travel loans come in handy to help millennial continue with their plans without any woes.
Essentially, a travel loan is a type of personal loan, which lenders offer to cover the traveling expenses. Travel loan is new in India as travel was initially considered a luxury expense and people were not too comfortable taking a loan for the same. However, it has been gradually gaining acceptance, especially among salaried borrowers with stable jobs, because of its lucrative offerings – cheaper mode of borrowing with funds available for an amount as low as Rs 10,000, flexible repayment tenures and hassle-free processing.
However, before you get carried away to apply for one, remember the following points to refrain from distressing your credit health:
1. Loan amount
Always remember to borrow the amount that you can pay off easily while assessing your repayment capability and financial needs. Never go overboard as you may end up taking unnecessary pressure, eventually leading to chaos. Besides, make sure your EMI doesn’t exceed 50 per cent of your salary. A low debt-to-income ratio is always advisable to consider any unexpected reduction or fluctuations in your monthly income or expenses.
2. Loan tenure
Always opt for a loan tenure which translates into an EMI you can comfortably service. Remember, while a shorter tenure loan may mean a higher interest rate, a longer loan tenure results in significantly higher interest outgo in absolute terms. Use an EMI calculator to identify the right combination of the loan amount, EMI and loan tenure.
Choosing a loan with flexible loan repayment option always works better in the long run as it allows you to pay off your debt whenever the funds are available. Most of the lenders have a lock-in-period, prepayment penalty and foreclosure charges to deter the borrowers from prepaying before time. This is an important parameter that needs to be compared carefully at the time of selecting a loan along with the other loan terms.
4. A smart budget = a happy traveller
Set a smart holiday expense budget, and stick to it, no matter how. Control the temptation to overspend and try to stay within the budget limit. To make a smart budget, break it into small sections allocating a range of amount for various expenses like tickets, transport, accommodation, food, shopping, etc.
5. Get your travel insured
Buy a suitable travel insurance policy in order to safeguard yourself from unfortunate happenings like theft of luggage and travel documents, accident, etc. Travel insurance acts as a backup, to cover loss due to any miss-happening while you travel. This gets even more important if you are availing a travel loan as you cannot afford to delay your EMI repayments in any situation and hence, an insurance can always come in handy in a scenario where you suffer any direct or indirect monetary loss during travel.
6. Don’t forget the documents
Although the processing of your travel loan will be hassle-free, it’s always advisable to arrange all require documents such salary slips, address proof, bank statement, identity proof, and passport size photos. Remember, many lenders also ask for additional details such as airfare, accommodation, travel plans, income and bookings. It’s better to first check with your respective lender and have all these documents in hand. Inability to produce the required documents may delay the approval of loan, reduce your chances of getting a loan or may force you to get loan at higher rates.
In addition to the above tips, make sure you have adequate liquidity in your bank account for miscellaneous expenses or existing EMIs, if any. Always make timely payments to maintain a healthy credit score. Take credit that you can responsibly manage, not more than that.
So, what’s keeping you waiting? It is time to pack your bags and take off to your favourite travel destination.
(By Gaurav Gupta, Co-Founder and CEO, Myloancare.in)