Loan Basics. A loan that’s your ticket to travel

Planning to go on a vacation this summer, but falling short of funds? Travel loans from banks and NBFCs may be your ticket to a great trip.

Travel loans are really a variant of personal loans. They are usually unsecured, but can also be structured as fully or partly secured loans. The loan amount is typically limited to 80 per cent of the trip expense. This includes tickets, visas, insurance, stay and other sundry charges. However, lenders may also cap the loans based on the repayment potential of the borrower.

These loans are usually given for a two- to three-year period to borrowers between 21 and 60 years of age. However, some lenders, such as UCO Bank, also offer loans to seniors if their age on the loan completion date does not exceed 70 years.

Loan processing fee can be between 1 to 3 per cent of the loan amount. Processing charges for KVB’s Bon Voyage Scheme is 0.3 per cent of the loan amount. Bank of India offers a processing fee waiver for senior citizens applying for the Star Travel loan. There is usually no prepayment penalty. Interest rates vary widely, similar to personal loans.

Before taking a travel loan, you may want to know whether you can opt for a generic personal loan. Typically, you can get a higher amount with a personal loan scheme compared to a travel loan, which is usually capped. For example, Saraswat Bank’s Pravasi loan is limited to ₹5 lakh while SBI’s Saral loan has a ceiling of ₹10 lakh. That said, NBFCs such as Bajaj Finserv offer travel loans for up to ₹25 lakh.

Travel loans may be fully or partly secured as opposed to personal loans which are always unsecured. Interest and processing costs may be lower for partly or fully secured travel loans.

For instance, SBI’s travel loan charges 8 per cent over and above the base rate. Bank of India’s Star Travel loan has an interest rate spread of 3 per cent over the base rate when fully secured with liquid collateral securities, such as TDRs, NSCs, Kisan Vikas Patra, LIC policy and so on. The mark-up increases to 3.5 per cent when it is only 50 per cent secured and to 4.25 per cent when it is wholly unsecured. So, if you have collateral at hand, you may want to opt for partly or fully secured travel loan so that your interest costs are reduced.

You can compare rates and other terms on portals to better understand your options. Also, your travel agent may also be able to help you get a loan quickly. With a lot of choices available, it is important for you to assess your personal situation before taking a loan. You must be sure of meeting the monthly payments for the loan or postponing your trip till your finances stabilise.

Having good repayment capacity also helps you land a good deal on your loan. Unlike housing loan, interest rates and processing fees vary widely and this helps you do your homework.

Lenders look at your income, credit rating, employment/business details and current liabilities when determining the amount and interest rate. A good credit score, of 750 or more, can put you in a better bargaining position. Likewise, your workplace has a big role to play when a salaried person applies for a loan, says Dhiren Makhija, co-founder, Cashkumar, a loan portal. Banks and NBFCs generally are hesitant to give loans to people working in unknown companies as also the self-employed who haven’t been in business for long.

Even with these, you may not get favourable terms if your current liabilities are high. For instance, if the debt service cost is over 40 per cent of your monthly net income, your loan may even be rejected, says Makhija.

Certain customers may be able to get special discounts. Teachers and professors can get a 0.25 per cent interest rate reduction on their Saraswat Bank Pravasi loan. UCO Bank’s Yatra loan scheme offers a small spread of 2 per cent over the base rate for their existing home loan customers who meet certain conditions. For example, borrowers must have a regular repayment record of at least 12 instalments and no overdue in the existing loan account.

On the flip side, do note that taking a loan for consumption rather than acquiring assets isn’t great for your financial health. If you can meet your travel expenses from your own savings, you must explore that option of taking a loan.

COMMENT NOW