Travel often promises life-changing experiences – whether trekking Machu Picchu, safari adventuring in Kenya or beach bumming Southeast Asia. Yet the financial realities of dream trips still need to be addressed for many. Enter travel loans, a customisable funding option for transforming travel aspirations into booked plans. In the section below, we’ll discuss travel loans in India.
An overview of travel loans
Travel loans function like other personal loans in that a lender provides upfront funds that borrowers repay in installments over an agreed term. What sets them apart is their specific intended use for vacations, honeymoons and other leisure travel booked through reputable companies.
Traditional banks and credit unions offer travel loans but increasingly also through peer-to-peer lenders. For borrowers with otherwise limited options, a credit-worthy cosigner can help obtain approval and better interest rates for exotic excursions that might not have happened otherwise.
Speedier access to funds matters most in travel loan decisions. Approvals come quicker, and money transfers faster – an advantage when timing matters in locking down favourable prices and availability.
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Types of travel loans
There are a few main types of travel loans available:
- Personal Loans: General personal loans can often be used to finance travel, even if not explicitly marketed as travel loans. The main advantage of a personal loan for travel is you can use the money for any purpose, not just travel.
- Cosigned Loans: Some lenders allow a cosigner on travel loans, which may help you qualify and get better rates if you have little or no credit history. Parents commonly cosign on loans for graduation trips or honeymoons.
- Secured Loans: Secured loans require collateral – usually a car title or bank account funds – which helps guarantee repayment. This also helps improve the loan terms.
- Peer-to-Peer Loans: Newer peer-to-peer lenders fund loans requested by individual borrowers with money from individual investors. They can offer competitive rates and more flexible eligibility criteria.
- Travel Agency Loans: Some resorts and higher-end travel companies offer financing programs and packages that bundle airfare, hotel, car rentals, and activities into one loan. Payments usually take place over 6 to 12 months after the trip.
Reasons to choose travel loans over other options
General consumer or personal loans are possible alternatives with fewer specified restrictions on fund usage. But travel loans have unique advantages:
- Quicker Funding Turnaround: Travel lenders appreciate that bookings often must happen fast to stay caught up. Pre-approvals happen fast, and funds arrive promptly after a loan is finalised. This prevents losing reservations or base pricing as the departure dates approach.
- More Flexible Criteria for Lower Credit Scores: Peer-to-peer networks are often willing to extend credit to borrowers who traditional banks may reject. However, eligibility still requires a steady income and a minimum credit history. Those with very poor credit still usually can’t obtain approval.
- Built-In Risk Mitigation: Travel lenders secure funds by getting payment over months as collateral. They can also pre-approve based on bookings with high-end companies where fraud risks seem minimal versus handing borrowers lump sums. This provides some safeguards around fund usage.
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Potential benefits of travel loans
Beyond faster access to money, there are some upsides to travel loans for funding epic adventures:
a. Pay over time instead of 100% upfront costs like paying on credit cards. Monthly payments spread costs rather than coming as unpleasant surprises later. Many favour this forced savings discipline.
b. Consolidate scattered expenses into predictable installments. Rather than juggling flight payments here, hotel there and various activity bookings, it’s all bundled neatly into one loan repayment structure.
c. Frees up savings that can take years to accumulate otherwise. For once-in-a-lifetime events, loans allow experiences sooner that may not reasonably happen for years based on current savings rates. This makes loans with reasonable terms worthwhile for some.
d. It helps build credit through on-time repayments- a nicety those lacking robust credit histories appreciate that general cards don’t always offer.
Factors to consider before applying
Travel loans provide much flexibility in financing vacations but also have long-term payment obligations. So, it’s crucial to carefully weigh the costs and tradeoffs when borrowing.
a. Interest rates and fees
Interest rates vary dramatically between lenders, from less than 6% APR to over 36% APR. Be sure to compare rates between multiple lender options. Also, watch out for origination fees charged upfront when the loan closes.
b. Loan term lengths
Borrowers also face the temptation to stretch the repayment term to shrink oppressive monthly payments. But this severely backfires on the overall cost.
As an example, take a ₹7,50,000 loan at 10% interest.
If repaid over 2 years, the total interest paid is ₹1,50,000
But if repaid over 5 years, total interest balloons to ₹3,00,000
The 5-year term cuts the monthly payment nearly in half compared to 2 years. Yet, that convenience costs over twice as much in interest in the long run.
c. Eligibility criteria
Each lender sets eligibility standards for income, credit score minimums, credit history length, existing debt-to-income, and other metrics. Be sure you qualify before completing full applications to minimise credit score impacts.
d. Impact on credit score
Loan applications usually require hard credit inquiries, which cause small, temporary drops in your credit scores – unless you are rate shopping within a 30-day span. Paying off a first-time travel loan responsibly helps build a positive credit history. But missing payments can badly hurt your credit.
e. Lender reputation & customer service
Carefully research any loan company on your short list before applying. Check consumer sites for complaints, read many reviews, and verify ratings with standards groups. Also, test their customer service by reaching out with questions. How responsive they are says a lot about their overall diligence and integrity.
Also Read: Unsecured loans: How does it impact the borrower?
The bottom line
Travel loans hold remarkable power – funding trips of a lifetime that lack of savings might otherwise prevent or delay for years. Prioritising experiences over materialism brings deep fulfilment for many. With prudent planning, these loans pave the path for cherished moments tomorrow without sacrificing financial stability long-term. Set aside impulse and carefully weigh options, but recognise that lifelong memories forged with loved ones carry value no mere dollar figure can reflect.
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