by Consumers seeking to finance their travel or vacation-related expenses can opt for travel loans, a variant of personal loans. Many lenders offer this facility either through their regular personal loan product or as a separate travel loan scheme under the broader personal loan category. Prospective travel loan applicants should consider the following factors before taking out personal or travel loans:
Credit Score
Banks and non-banking financial companies (NBFCs) consider their credit scores as one of the primary determinants to assess the eligibility of their personal loan applicants. Those having credit scores of 750 and above usually have higher chances of getting loan approval. Many lenders also give due importance to their applicants’ credit scores while setting their personal/travel loan interest rates. Thus, applicants having higher credit scores usually have higher chances of availing personal loans at lower interest rates. Therefore, prospective travel/personal loan applicants can improve their credit scores by following good credit practices like repaying their EMIs or credit card bills on time, not applying for multiple loans or credit cards within short durations, etc. and thereby, increase their eligibility for availing travel loans or personal loans for travel.
Individuals seeking personal/travel loans should fetch their credit reports from credit bureaus at regular intervals. Doing so allows them to take corrective measures to improve their credit scores and thereby, be credit-ready for availing personal loans. Prospective borrowers who fetch their credit reports at regular intervals can check for any errors or incorrect information mentioned in their report and for any suspicious credit activity made in their name. They should report any such instances to both lenders and credit bureaus for correction. A rectified credit report might increase your credit score, which in turn will improve your travel/personal loan eligibility.
Interest rates
Lenders offer personal loans at interest rates usually starting from 10.49% p.a. The interest rates on personal loans are usually the same as the travel loan interest rates. However, some lenders may offer lower personal/travel loan rates to their existing customers. The interest rates may differ from one lender to another due to the risk factors and the credit assessment model of individual lenders. Therefore, prospective borrowers should check and compare the personal loan interest rate offered by multiple banks/NBFCs before making personal loan or travel loan applications. Many lenders also offer pre-approved personal loans to their select existing customers based on their credit profiles. Therefore, prospective borrowers should first check with their existing lenders with whom they have deposit or lending relationships. Loan applicants can also visit online financial marketplaces to compare the interest rates on personal loans offered by multiple banks/NBFCs based on their credit profiles.
EMI affordability
Lenders usually prefer approving personal loan applications of those having their debt obligations, including the EMI of their proposed travel or personal loan, within 50% to 55% of their net monthly income. Loan applicants whose debt obligations exceed the above-mentioned limit either face personal loan rejection or the lender approves their personal/travel loans at higher rates. Consequently, personal/travel loan applicants should find the optimal EMIs and tenures depending on their repayment capacity. Those exceeding the 50-55% limit can opt for longer tenures and/or lower amounts to reduce total EMI obligations and improve their eligibility for availing personal loans.
Repayment tenures
The tenure of personal/travel loans usually goes up to 5 years. However, some lenders offer longer repayment periods of up to 7 or 8 years on these loans. Personal loan applicants selecting shorter tenures have higher EMIs but lower interest costs. On the other hand, longer tenures lead to lower EMI burden but higher interest costs. Hence, prospective borrowers should use online personal loan EMI calculators to calculate total interest costs and set optimum loan tenures on the basis of their repayment capacity and unavoidable financial goals.
Prepayment charges
The RBI has barred banks/NBFCs from charging part-prepayment or foreclosure penalties on floating interest rate loans. However, lenders are free to charge such penalties on loans availed at fixed rates of interest. The prepayment fees for fixed-rate personal/travel loans can go up to 5% of outstanding principal amount. Moreover, lenders may also restrict their personal loan borrowers from prepaying their loans until they pay back a pre-determined number of EMIs. Thus, prospective applicants planning to part-prepay or foreclose their loans in the future should check and compare these charges. Doing so will help them avail personal loans from lenders levying zero or low prepayment charges with fewer restrictions.
Processing fees
Lenders offering personal/travel loans usually levy processing fees of up to 4% of the loan amount. Some lenders also cap their personal loan processing fees, irrespective of loan amount, while some others waive off the charges during festive seasons. The processing fees add to your total borrowing costs in spite of being a one-time expense. Therefore, prospective applicants should compare the processing charges levied by multiple banks/NBFCs while comparing their travel or personal loan offers.
