People these days prefer to use credit for their leisure activities and big purchases instead of using their savings.
Gone are the days when people used to plan their trips in advance and also used to save money for that. With day-today expenses increasing steeply, it has become almost impossible to do so. Also, nobody has the patience to wait until enough money is amassed. People these days prefer to use credit for their leisure activities and big purchases instead of using their savings, which could be later used for contingencies.
Credit cards have assuaged this dilemma to some extent as people can easily use them for immediate and unexpected expenses that can incur during a trip. “A couple or so decades ago, when credit cards entered the Indian economy, it was looked upon with wariness. The whopping interest rates were one reason, non-familiarity was the second reason. Now travel loans are preferred because interest rates are less compared to those of credit cards and they are also easily and quickly accessible. Using credit cards or taking personal loans for travel thus helps in arranging money which can be paid later in easy instalments,” Aditya Kumar, Founder and CEO, Qbera.com.
People from all parts of the country are now-a-days opting for travel loans. However, applicants going for travel loans have 30% higher average income than other personal loan applicants (Rs 44,000 for travel loan applicants vs. Rs 35,000 for average personal loan (PL) applicant per month, according to a study). With more and more people opting to travel these days, a sharp rise in the number of people applying for travel loans has also been seen. Qbera, for instance, claims to have witnessed an 18% growth in the last 2 months, which is expected to increase further as September and October (apart from August) have the maximum number of long weekends in a financial year.
According to industry sources, typical travel loans range between Rs 50,000 and Rs 3 lakh, depending on the type of travel — domestic or international – with the average ticket size being Rs 1 lakh. “We, however, have built a travel loan PL product with ticket sizes ranging from Rs 50,000, which could help one travel to a nearby location within India, to Rs 7.5 lakh, which is sufficient for a family travelling to any exotic destination in the world. For instance, a 2-3 week long vacation to New Zealand usually costs around Rs 4.5 lakh to Rs 7 lakh. The disbursement turnaround time is quick and the applicant gets the money within 24 hours post approval. This helps the applicant to plan his trip and budget. Compared to credit card dues, the EMI will be way less,” says Kumar.
Travel loans are usually available at rates starting at 14%, which is cheaper compared to spending on a credit card (where the annual interest rate comes out to around 36% (and even 40% and more in some cases). Thus, you will be able to save almost Rs 42,000 on a 3-year loan amount of Rs 100,000 by opting for a travel loan instead of a credit card loan. Also, not all credit cards are accepted in some countries. This explains people’s growing preference for travel loans over credit cards these days.