Last Updated on Mar 17, 2022 by Anshiya Tabassum
It often happens that your budget estimate rarely covers up all the plans you have for your destination getaway. Furthermore, if the plan you made was an instant one, chances are high that you do not have liquid cash.
You may not have enough funds to cover the flight tickets, hotel bookings, and other transportation costs. Worse, you might have to cut down on one or two unforgettable experiences you were looking forward to.
A travel loan can be the perfect solution to all the aforementioned woes. The substantial amount that you will get will be enough to fulfill all the items on your bucket list, irrespective of whether you are traveling within your country or abroad.
But is a loan worth the trouble for traveling? Let us find out!
This article covers:
- What is a travel loan?
- Requirements to fulfil
- Pros and cons of a travel loan
- Steps to apply for a travel loan
What is a travel loan?
A travel loan is a subgroup of personal loans which do not require any security. These can be used to fund your trips to certain destinations. Travel loans are of two types- personal travel loans and credit card loans.
Personal travel loans usually have flexible repayment periods, which can be adjusted according to your needs. Personal loans are simpler, with no collateral involved, hence are relatively easily accessible. Compared to credit card-based loans, the interest rates on personal travel loans are also much lesser.
Credit cards travel loans are calculated by converting the entire expense meted out on the card as an outstanding loaned amount. Hereafter, you have to pay out this money in equated monthly installments (EMI)s.
You can apply for a vacation loan at any reputable bank or from any loan-providing enterprise you trust. Nowadays, tourism companies also provide tour packages that provide options for hassle-free personal loans for travel.
Requirements to fulfill
The eligibility criteria for a travel loan are the same as that of a personal loan. Almost every financial institution requires you to be between the age of 21 and 60, although some may need you to have stable employment for at least a year.
Also, you ought to keep the following documents at hand for presenting to the loan provider at the time of application:
- A photo identity proof
- A current photograph, passport size
- Proof of your address
- Document of income- includes the Form 16, filing of income tax return, and salary slips of 6 mth to the date of application.
Pros and cons of a travel loan
Often our trip budgets are not enough to fulfill our wanderlust or check off all the things on our vacation to-do list. Here is where a travel loan comes in handy.
However, like with every other loan, borrowing money entails a huge responsibility. Hence, it is prudent for you to exercise some caution when getting a travel loan, especially one based on your credit card.
Here are the upsides and drawbacks of taking a travel loan to fund your vacation
Longer repayment window
Usually, in the case of a personal travel loan, the repayment tenure is kept longer and more flexible, according to your requirements. Depending on the amount you can pay back every month, you can choose a window.
Moreover, most lenders do not charge any penalties for the prepayment of the entire loan amount. This means you have the option to choose a shorter window and settle the amount as soon as you wish and can pay up to foreclose the loan.
Interest rates could be a major deciding factor while availing of travel loans. If compared, credit card loans could be more expensive, i.e carry higher interest charges to personal loans. Different institutions offer different interest rates depending on your credit scores, history, etc.
If you are applying for a travel loan from a bank, the process is pretty straightforward, where you have to provide only a few essential details. In fact, with the advent of the internet, online applications from the comfort of your home are also a great alternative. Once approved, the bank will deposit the funds in your account within no more than a week.
Increased overall expenses
Since you have to pay the principal amount and the interest on the principal, naturally, your budget for expenses will increase.
Best loan terms might not be available
If you do not have a satisfactory credit score, then the lender might not give you the best loan rates. Furthermore, if it is a credit card-based loan, then you might have to forego all the facilities you get from your credit card company.
Unexpected additional fees
If you take a loan for travel, you might have to pay extra charges—these range from an origination fee to prepayment penalties.
Steps to apply for a travel loan
Now that online applications are in vogue, applying for a travel loan has become hassle-free. Usually, the official website of the credit provider will have an “apply online” section for personal loans.
You have to fill up the details required and provide the documents, after which your application will get submitted. Based on the information you provided, you will get quotes on the rates of interest to choose from.
Usually, a representative from the bank or the credit lender will contact you to complete the process after discussing your requirements. Otherwise, you can also apply in a good old-fashioned manner via phone or in-person at their office.
Travel loans are one of the easiest methods to procure credit without many legal complications. Lower interest rates and flexibility to choose your repayment term make travel loans lucrative and safe financing options for vacations. However, it is prudent not to borrow an excessive amount. Furthermore, do keep an eye on your existing credit history. For, if you already have unsecured loans on your credit, you won’t get the desired quote.
Should you take a travel loan will depend on various factors such as your repayment history, interest rates, and finally, time period. Consult your financial planner and make an informed decision regarding vacation loans.