Most banks and non-banking financial companies (NBFCs) allow individuals to finance their travel/vacation related expenses through their regular personal loan schemes. However, some lenders also offer travel loans, a personal loan variant, for the same purpose. Prospective borrowers planning can consider the below-mentioned factors while availing travel loans or personal loans for financing their travel plans:
Credit Score
Just like regular personal loans, banks/NBFCs offering travel loans would consider the credit scores of their travel loan applicants to assess their eligibility. Lenders are more likely to sanction travel loans of those having credit scores of 750 and above. Lenders may also consider the credit score of their travel loan applicants while setting their interest rates. Hence, prospective travel loan applicants having higher credit scores are usually more likely to avail lower travel loans interest rates. They can increase their credit scores by following disciplined credit behaviour like on-time repayment of their EMIs or credit card bills, not availing multiple loans/credit cards within short periods, etc.
Travel loan applicants should fetch their credit reports from the credit bureaus at regular intervals. Doing so will allow them to take corrective steps and improve their credit scores. Furthermore, they would also be able to identify any errors or incorrect information in their credit reports or any fraudulent credit activities made in their name. Such errors or fraudulent activities, if any, should be reported to the lender and the credit bureau for correction. Rectified credit reports may increase your credit score and thereby, improve your travel/personal loan eligibility.
Interest rates
The interest rates offered by lenders on travel loans are usually the same as that of regular personal loans. Personal loan interest rate usually start from 10.49% p.a. onwards with some public sector banks offering lower rates to their applicants. However, the final interest rate offered to a personal loan applicant may differ across lenders due to variations in their credit risk assessment models. Therefore, prospective travel loan borrowers should compare the personal loan interest rates offered by multiple lenders before applying for the loan. Many lenders also offer pre-approved personal loans to their select existing customers, depending on their credit profiles, at lower interest rates.
Thus, prospective applicants should first check with their existing lenders with whom they have deposits, loans or credit cards for any pre-approved travel/personal loan offers. They should also visit online financial marketplaces like Paisabazaar to compare the personal loan interest rates offered by multiple lenders, on the basis of their credit profiles. Then, the applicants can opt for the lender charging the lowest interest rates and/or offering quicker personal/travel loan disbursal.
EMI affordability
Lenders usually approve the travel loan applications of those having debt obligations, including the proposed EMI of their travel loan, within 50-55% of their monthly income. They may reject travel loan applications prospective borrowers whose total monthly repayment obligations exceed the 50-55% limit. Such loan applicants can choose longer tenures and/or lower loan amounts to reduce their EMI obligations and improve their travel loan eligibility.
Repayment tenures
Just like regular personal loans, the tenure of travel loans usually goes up to 5 years. However, some lenders offer longer tenures of 6 or 7 years. Those opting for shorter repayment periods will incur lower interest costs but pay higher EMIs. On the other hand, choosing longer personal/travel tenures would lead to lower EMIs but higher interest cost burden.
Therefore, prospective applicants should use personal loan EMI calculators to calculate the interest costs and select tenures based on their repayment capacity and important financial goals. They can either use the personal loan EMI calculators provided by lenders on their websites or use Paisabazaar’s Personal Loan EMI Calculator or that of other online financial marketplaces to know their optimum EMI and loan tenure for their travel plans.
Prepayment charges
The RBI has barred the lenders from charging prepayment fees on loans having floating interest rates. However, they are free to levy prepayment penalties on fixed-interest rate loans. In case of travel/personal loans availed at fixed interest rates, lenders charge prepayment fees of up to 5% of their outstanding principal amount. Furthermore, lenders may also restrict their existing borrowers from prepaying their travel loans until the repayment of a predetermined number of EMIs. Therefore, prospective borrowers planning to part-prepay or foreclose their travel loans in future should compare the prepayment related terms & conditions of multiple lenders.
Processing fees
Lenders offering travel or personal loans usually charge processing fees of up to 4% of the loan amount. Some lenders also cap their processing fees, irrespective of the loan amount, while some others waive it off during festive seasons. As the processing fees add to borrowing costs despite it being a one-time expense, prospective applicants should compare the processing fees of multiple lenders while comparing their personal loan or travel loan offers.