Big banks provide personal loans for holidays with a longer tenure. Take your pick.
With travel loans not so easy to come by, financial advisors say exotic vacations can be postponed rather than taking high value loans.
Here’s what you should know before you take a call on availing a loan for your vacations.
While tour operators, who offer special packages in collaboration with banks, have stopped doing so, most major banks do not provide loans under the ‘travel loan’ head because they are non-collateralised. However, you can avail a personal loan with a longer tenure from big banks to fund your travel. The silver lining, however, is that many small banks do provide travel loans at a rate lower than personal loans. Take an example of Kolkata-based public sector lender, United Bank of India. The bank has branded its product as United Tour & Travel Credit Scheme and charges 0.75 per cent more than its prevailing prime lending rate under this floating rate scheme.
“The current rate for travel loan is 12.75 per cent. This is cheaper than the personal loan rate, which stands at 14.25 per cent,” said P K Tah, chief manager at United Bank of India. Although the bank has branches in all major cities, this scheme is available only at select outlets in the four metros – Delhi, Mumbai, Kolkata and Chennai. Similarly, Kerala-based Federal Bank gives travel loans at 16 per cent. This is 25 basis points cheaper than their personal loan. “However, the quantum one can get is higher for a travel loan,” said Chandra Mohan, deputy general manager (head of retail banking) at Federal Bank.
For a family tour, one can avail up to Rs 3 lakh and, for an individual, the maximum limit is Rs 1.5 lakh. On the other hand, the maximum amount of personal loan that one can get is Rs 2 lakh.
Some cooperative banks in your city too might offer attractive interest rates for travel loans. But, you might have to do some research. In Mumbai, for example, Vasai Vikas Sahakari Bank gives travel loans (Suhana Safar) at 12 per cent. “Other loans (backed by security) are available at 13.5 per cent,” said Vasai Vikas Sahakari Bank Chief Executive Officer Dilip Sant.
But, there is a catch. Both, United Bank of India and Federal Bank, ask for collateral for such loans.
Federal Bank asks for a compulsory 20 per cent liquid securities (shares, mutual funds and so on) or 40 per cent illiquid one (property, Kisan Vikas Patra and so on) for any loan amount. Another prerequisite is the spouse should be the co-applicant.
United Bank of India requires at least 40 per cent securities for loans above Rs 1 lakh. The loan is sanctioned provided the person gets a guarantor and has the relevant visa. Most banks, which provide travel loans, limit the tenure to three years.
In case you go for a personal loan with a bigger bank, the rate will be high. HDFC Bank, for example, charges between 14 and 30 per cent, depending on the customer. However, the repayment period is longer, at least five years. Of course, these easy installment schemes, however attractive, are no match for paying upfront. So, do your maths before taking one.
If you take a seven-day package tour to Malaysia and Singapore, it would cost around Rs 60,000. If this is financed through a travel loan for 36 months at an interest rate of 12.75 per cent, the equated monthly installment (EMI) would come to Rs 2,014. Add another Rs 600 (1 per cent of loan amount) as processing charges.
However, financial planners suggest one should not travel if the loan amount is too high. It makes sense only if you are taking such loan for partial financing only. “Borrowing to finance your vacation is a consumption loan, wherein a person is not creating asset that can come handy for him in the future,” said Malhar Majumder, who runs a financial planning firm, Wishlist Capital Advisors. He further added, “Such loans can lead to a debt trap. Exotic vacations can be postponed rather than taking high value loans.” So, before you take a travel loan, make sure that you are taking one to bridge a shortfall rather than funding the entire journey. Remember, EMIs should not adversely impact your monthly expenses and investments in the future.