Travel loans gain big traction among millennials

That breathtaking view from the top of the Eiffel Tower in Paris or a visit to the Pyramids of Giza may be a distant dream for many. People used to save money for years to travel either within the country or outside for year-end holidays. Of late, people have started using credit cards, but end up paying huge interest rates.

With a steady increase in the youth population, which has a high disposable income, many want to travel quite often and travel loan has become the preferred choice than credit cards. Though it is at a nascent stage, travel loan is slowly gaining popularity among people, and banks too offer personal loans for travelling.

“Travel loans are preferred because the interest rates are less compared to that of credit cards and they are also easily and quickly accessible. Using credit cards or taking personal loans for travel help in arranging money which can be paid later in easy instalments,” says Qbera.com Founder and CEO Aditya Kumar.

Travel loans are essentially a variant of the personal loan. “Their features, interest rates, terms and conditions may be similar to a typical personal loan,” says Bankbazaar.com CEO and Co-Founder Adhil Shetty.

Bengaluru-headquartered FinTech startup Qbera has built a travel loan PL product with ticket sizes from Rs 50,000, which could help one travel to a nearby location within India, to Rs 7.5 lakh, for a family travelling to any exotic destination.

“For instance, a two- to three-week long vacation to New Zealand usually costs around Rs 4.5 lakh to Rs 7 lakh. The disbursement turn-around-time is quick and the applicant gets the money within 24 hours post approval. This helps the applicant to plan his/her trip and budget. Compared to credit card dues, the EMIs will be less,” explains Kumar.

Travel loans are available at rates starting 14%, which is cheaper compared to spending on a credit card, where the annual interest rate comes to around 40%. “Also, not all credit cards are accepted in some countries. To avail the loan, the customer has to provide basic ID/Residence Proof documents for KYC along with their bank account statement,” he says.

EMIs are more popular in international travel where the adoption rate is nearly double than that of domestic travel, due to the high transaction size, says Cleartrip Chief Revenue Officer Amit Taneja.

Cleartrip offers EMI options from all major banks to its customers. “The interest rates on EMIs for such loans range from 12% to 14% and can be availed instantly online, thereby aiding a smooth booking process,” Taneja says.

“The transaction size on EMI is 30% higher as compared to normal transactions. EMI bookings also tend to be group or family bookings with a higher number of passengers per booking than normal bookings,” he adds.

Typical travel loans range between Rs 50,000 and Rs 3 lakh, depending on the type of travel, domestic or international, with the average ticket being Rs 1 lakh.

“People from all parts of the country are opting for travel loans. However, applicants going for travel loans have 30% higher average income than other personal loan applicants (Rs 44,000 for travel loan applicants and Rs 35,000 for average PL applicant per month),” says Kumar.

Apart from this month, the last two months had the maximum number of long weekends and Qbera is seeing 18% growth in the last two months for people applying for travel loans.

On loan disbursement, Shetty says that the loan disbursed may be dictated by the borrower’s eligibility.

“As of today, interest rates on personal loans begin from 10.60%. The repayment tenure may be between 12 and 60 months. Apart from the interest costs, there will be processing fees applicable. The lender may ask for security or guarantor as per its terms and conditions,” he explains.

“The security may be either full or partial. The processing for personal loans are hassle-free and they can be availed online. Travel loans may or may not have destination-based eligibility criteria, that is foreign travel only or domestic travel only. In case there are no limitations on using the funds, one may use them for travelling to any destination, both domestic and abroad,” he adds.