Six factors to keep in mind before availing travel loans

Travel loans are a variant of personal loans, offered to consumers for financing their travel-related expenses. However, very few lenders offer travel loans as a separate variant of personal loans. As the features of travel loans are similar to personal loans, consumers can also avail regular personal loans to pay for their holiday expenses. Here are some of the factors that a prospective applicant should consider before availing a travel loan or a personal loan to cover his travel-related expenses.

Credit score

Just like personal loans, most lenders offering travel loans consider the credit scores for evaluating the eligibility of their loan applicants. Many lenders also consider credit scores while setting the interest rates of their travel or personal loan applicants. Lenders are more likely to approve personal loan or travel loan applications of individuals having credit scores of 750 or above. Many lenders also offer personal loans at lower interest rates to applicants having higher credit scores. Thus, prospective personal loan borrowers should improve their credit scores by repaying their credit card bills and EMIs within the due date. Applicants should also avoid making multiple loan or credit card applications within a short period. Doing so will not only help improve your credit score, but it will also increase your eligibility for availing personal loans or other credit facilities at lower interest rates.

Note that any errors present in your credit report can lower your credit scores. Therefore, you should fetch your credit report at regular intervals, identify any clerical errors or incorrect information present in these reports and report them both to the lender and to the concerned credit bureau for rectification. A rectified credit report would automatically improve your credit score.

Interest rates

Lenders usually offer personal loans at interest rates starting from 10.49 per cent p.a. The interest rates of travel loans are also usually the same as personal loans. The final interest rates offered on personal loans or travel loans may vary from lender to lender depending on the borrower’s credit scores, monthly income, occupation profile, employer profile, etc. Lenders usually offer their lowest personal loan interest rates to loan applicants having the best credit profiles. Therefore, always compare the personal loan or travel loan interest rates offered by as many lenders as possible before making the final application.

As many banks/NBFCs offer personal loans or travel loans at lower rates to their existing customers, always check with your existing banks/NBFCs with whom you already have deposits, loan accounts or credit cards regarding their personal loan offers.

EMI affordability

Lenders usually prefer sanctioning travel loans to individuals whose total EMIs, including the EMI of their proposed loan, remain within 50-60 per cent of their net monthly income. Therefore, applicants availing travel loans should find the optimum EMIs and tenures for their personal loan, depending on their repayment capacity. Applicants whose total EMIs exceed 50-60 per cent of their net monthly income should opt for longer repayment tenures and/or lower personal loan amounts to reduce their monthly EMIs and improve their EMI repayment capacity.

Repayment tenure

— Shagun Sharma is an independent business journalist.