Sujata Ahlawat, Head – Direct to Consumer Interactive, TransUnion CIBIL
Unlike the previous generation, millennials today place more value in acquiring experiences rather than commodities.
Did you know that a whopping 62% of Indian millennials
travel between two to five times a year; from short domestic trips to longer international sojourns?
With Indians travelling much more than ever before, banks and financial institutions are now offering loans at lucrative interest rates. Travel loans are quickly emerging as the preferred credit option, being a cheaper form of credit than credit cards, having 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 INR 10,000 to INR 25,00,000 with interest rates ranging from 11% to 21%. However, the higher the loan amount, the more will be the repayment amount. Hence, it is important to assess how much of the travel can be provided for through savings and then decide on other requirements that can be fulfilled through a loan.
Check your secured vs. 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, personal loans, etc. 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 the total EMIs you pay only amount to 30% of your monthly income.
Have all the documents at hand
Getting a travel loan does not involve a lot of documentation but some mandatory documents required will be your address proof, identity proof, bank statement, salary slips and passport size photographs, in case of a salaried individual. If you are self-employed or not yet employed, the requirements may vary. Some lenders may also require additional details such as your income, air fare, accommodation bookings and travel plans. Check with your lender and keep all your documents at hand to expedite the loan disbursement.
Choose your repayment terms 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 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 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, in turn, 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.
