If you go through a person’s profile on Instagram today, no matter what their profession, you’re very likely to find one of these words included in their bio – traveler, wanderer, nomad or something similar. The travel and tourism industry is the world’s largest, yet, there is dearth of information that is usable on how one can actually become a ‘traveler, wanderer or nomad’. Due to this, most aspiring travelers do not even know of the options they have to avail of funds to travel – including travel loans.
Similar to personal loans, both banks and non-banking financial companies offer travel loans. It is a good option to use when one is void of any other redeemable investments to fall back on. Travel loans can be either secured or unsecured and for amounts above 2 lakh, lenders may seek a guarantor or collateral. One of the biggest advantages of a travel loan is that their interest rates are usually lower than those of personal loans.
Travel loans could cover everything, from your airfares to hotels to insurances to tour packages, etc. The loaned amounts for foreign destinations are higher than domestic. Some travel loans are destination-based, inclusive of tour packages and the repayment terms depend on the time-span upon agreement of loan terms. Senior citizens can also avail of special travel loan schemes at preferential interest rates. Different institutions have different requirements for application, etc – read the terms and conditions carefully before finalising any loan.
Once you have fixed the interest rate, it is easier to structure and therefore budget your repayments, keeping in mind other financial commitments, every month. Interest rates on travel loans could vary from 12%-20% and the monthly installment is deducted from your bank account automatically. Try maintaining an EMI amount that is lower than 40% of your net monthly income and repayable within 12 -24 months.
You are required to disclose your source of income, details of travel plan – including visa if and when going abroad. Documents required include identity proof, residential proof, salary slips of the previous three months, while business owners need to furnish ITR documents or business ownership documents.
By and large, the basic criteria for salaried people to avail of a loan is that he or she should be between 21-58 years of age, employed in a private or public sector organisation of some repute with a at least about a two-year track record in said organisation. If you are self-employed, you are required to have about a three-year business record. Processing fees vary and could even be waived off depending on the individual’s credit and banking history.
It may be better to utilise your funds from low-yielding investments like fixed deposits and debt funds being that their returns are usually lower that interest payouts. Experts advise against redeeming equity funds for travel expenses as they provide higher returns in the long run. In order to save on higher interest payout for travel loans, using mutual funds or stocks as security may be a good idea if you have sufficient long-term investments for collaterals.
Credit cards could also be used to finance your travel plans due to its interest-free 55-day credit period and attractive rewards and discounts on offer in India and abroad. However, using a credit card in offshore locations attract a foreign transaction fee of up to 3.5% of the total transaction value. Nonetheless, if one is required to pay the money, he or she could convert the amount to monthly installments – with the additional 18%-25% per annum interest rate.
Travel loans come with high interest cost thus one should only resort to it when travel is essential. The ideal thing to do is invest in a recurring deposit, as one option, to systematically invest month-on-month and fund your travels basis returns earned. Also, always try planning well in advance.