Most banks and non-banking finance companies (NBFCs) allow individuals to avail regular personal loans for financing their travel or vacation-related expenses. However, some lenders also additionally offer travel loans, as a variant of personal loans, for the same purpose.
Those planning to avail of travel loans should consider the below-mentioned factors during the loan selection process:
Credit Score
Just as in the case of regular personal loans, lenders would consider the credit scores of their travel loan applicants to assess their loan eligibility. Applicants having credit scores of 750 and above usually have higher chances of availing travel loans. Many lenders also consider their travel loan applicants’ credit scores while deciding their interest rates. Therefore, those having higher credit scores are usually more likely to avail of travel loans at lower interest rates. Prospective applicants can build their credit scores by following good credit practices like repaying their credit card bills or EMIs on time, not availing multiple loans/credit cards within short periods, etc. to increase their loan eligibility.
Prospective travel loan applicants should also fetch their credit reports from the credit bureaus at regular intervals. Doing that would allow the applicants to take corrective steps to improve their credit scores. Additionally, they would also be able to identify errors or incorrect information in their report, if any, or fraudulent credit activity made in their name. Any such instances should be reported to both the lender and the credit bureau for correction. Rectified credit reports may increase their credit score and thereby, improve their loan eligibility.
Interest rates
The interest rates offered on travel loans are usually the same as the personal loan interest rates. The interest rates on personal loans usually start from 10.49% p.a. However, the final interest rates offered to a loan applicant may differ across lenders because of the variations in the credit assessment models used by the banks and NBFCs. Hence, prospective borrowers should compare the personal loan interest rates offered by multiple banks/NBFCs before making travel loan applications. Many lenders also provide pre-approved personal loans to their select existing customers, depending on their credit profiles, at lower interest rates. Hence, prospective travel loan borrowers should first check with their existing banks/NBFCs with whom they have deposits, loans or credit cards for pre-approved personal loan or travel loan offers, if any. Then, they should visit online financial marketplaces to compare the personal loan interest rates offered by multiple lenders based on their credit profiles. Then, they should opt for the lender charging the lowest interest rates and/or offering the quickest disbursal.
EMI affordability
Lenders usually grant travel loan approval to those having debt obligations, including the EMI of their proposed travel loan, within 50-55% of their net monthly income. Travel loan applicants whose debt obligations exceed the aforementioned limit may either face loan rejection or the lender may approve their loans at higher interest rates. Such applicants can opt for longer repayment tenures and/or lower loan amounts to reduce their total EMI obligations and improve their loan eligibility.
Repayment tenures
Just like personal loans, the tenures of travel loans usually extend up to 5 years. However, some banks/NBFCs offer longer tenures of up to 7 or 8 years. Loan applicants opting for shorter tenures would incur lower interest costs but pay bigger EMIs. On the other hand, opting for longer tenures leads to a higher interest cost burden but lower EMIs. Hence, prospective applicants should use personal loan EMI calculators to calculate the total interest costs and set loan tenures based on their repayment capacity and unavoidable financial goals. They can either use the personal loan EMI calculators provided by the lenders on their websites or use Paisabazaar’s Personal Loan EMI calculator or that of other online financial marketplaces to find their optimum tenure and EMI of their planned travel loans.
Prepayment charges
RBI has barred lenders from levying part-prepayment or foreclosure penalties on loans having floating interest rates. However, the lenders are free to charge prepayment or foreclosure penalties on fixed-interest rate loans. The prepayment fees for travel loans availed at fixed interest rates can go up to 5% of the outstanding principal amount. Furthermore, banks/NBFCs may also restrict their borrowers from prepaying their travel loans until they repay a predetermined number of EMIs. Therefore, those planning to part-prepay or foreclose their travel loans later on should compare the part-prepayment or foreclosure related restrictions of multiple lenders.
Processing fees
Lenders offering travel/personal loans usually charge processing fees of up to 4% of the loan amount. Some banks/NBFCs also cap their processing fees, irrespective of personal loan amount, while some others waive off the loan charges during festive seasons. As the personal loan processing fees add to the total borrowing costs despite being a one-time expense, prospective personal loan applicants should compare the processing charges levied by multiple lenders while comparing their travel/personal loan offers.
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