Unlike the previous generation, millennials today place more value in acquiring experiences than commodities. Did you know that 62 per cent of Indian millennials travel between two to five times a year, from short domestic trips to longer international sojourns?
With Indians travelling more than before, banks and financial institutions are offering loans at lucrative interest rates. Travel loans are quickly emerging as the preferred credit option; they are cheaper than credit cards, and have a faster disbursement turnaround time, less documentation and flexible repayment terms. If you are planning to take a travel loan, here are some points to keep in mind:
TAKE ONLY WHAT YOU REQUIRE
Typically, a travel loan can range from Rs10,000 to Rs25,00,000, with interest rates ranging from 11 per cent to 21 per cent. However, the higher the loan amount, the more you will have to repay. Hence, it is important to assess how much of the travel cost you can cover with your savings, and then decide on how much money, if any, needs to be taken on loan.
CHECK SECURED VERSUS UNSECURED CREDIT EXPOSURE
A right mix of secured and unsecured loans is important to maintain a good credit history and a high credit score. If you already have a large number of active unsecured loans (loans without collateral), such as an education loan, multiple credit cards and personal loans, it is not advisable to add to the burden with a travel loan.
A high number of unsecured loans on your credit report can negatively impact your credit score and may impede your chances to get a loan in future, especially during emergencies. Avoid falling into the debt trap by ensuring that the total EMIs you pay only amount to 30 per cent of your monthly income.
HAVE ALL DOCUMENTS AT HAND
Though getting a travel loan does not need a lot of documentation, you will need your address proof, identity proof, bank statement, salary slips and passport size photographs, in case you are a salaried individual. If you are self-employed or not yet employed, the requirements may vary. Some lenders might also require additional details such as your income, airfare, accommodation bookings and travel plans. Check with your lender and keep all your documents at hand to expedite the loan disbursement.
CHOOSE YOUR REPAYMENT TERM CAREFULLY
Usually, the repayment tenure on travel loans ranges between 12 and 60 months after the loan is availed. The interest rates on these tenures will also vary. Though you might consider a longer repayment term with a lower interest rate, the truth is you will pay more than what you would pay if you opt for a shorter one with a relatively higher interest rate. Also, check the lender’s terms and conditions about a prepayment option if you would like to pay more in case you have a bit of excess cash in hand, like from a bonus received.
In the midst of your travel plans and excitement, remember to keep your account funded for any upcoming EMIs scheduled for while you are away. Ensure you do not miss a single payment due date, which can impact your credit score. And always remember to monitor your credit score and report regularly. This will help you keep a tab on your credit portfolio, watch for score trends and ensure you are not taking on more credit than you can responsibly manage.
Ahlawat is head, direct to consumer interactive, TransUnion CIBIL.