Borrowing to spend on a holiday would not be the most prudent thing to do. But owing to temporary cash flow issues, if you are looking at loan options for spending on a vacation, there are travel/holiday loans offered by banks and finance companies. Travel loans are predominantly a form of personal loan.

The documentations, processing and various charges that are levied while taking a personal loan apply to travel loan as well. You need to give your salary slips, bank account statements, address and identity proof, etc, as a part of the documentation process. The only difference here would be that since you are getting this for your travel purpose, the speed of loan disbursal is relatively faster.

Charges applicable Processing charges and loan foreclosure charges are applicable for travel loans as well. The loan eligibility will depend on your income. Some institutions like Bajaj Finserv have a slab on the net monthly salary. It varies between ₹30,000 and ₹45,000, depending on the city you live. Their processing fee ranges from 2.25 per cent to 3 per cent. ICICI Bank’s Holiday Loan is the same as its normal personal loan. The loan limit is the same — up to ₹20 lakh — and the interest rates starts from 11.59 per cent per annum. ICICI Bank levies a processing fee of 2.25 per cent and the foreclosure charge is 5 per cent.

There are, however, instances when these travel loans differ slightly from normal personal loan. First is the loan tenure. While the personal loan has a tenure ranging from five to seven years, it is restricted to two to three years in case of a travel loan.

The other major difference is that, in some cases, the travel loans become a secured loan unlike a normal personal loan, which is purely an unsecured loan segment. In Bank of India’s (BOI) Star Holiday Loan Scheme, you have the option to borrow with or without a collateral.

Liquid securities like Term Deposit Receipts (TDR), National Savings Certificate (NSC), LIC Policy, Indra Vikas Patra (IVP) and Kisan Vikas Patra (KVP) are accepted as collaterals. The BOI’s Star Holiday Loan Scheme will offer you a higher loan amount ranging from ₹5 lakh to ₹10 lakh with a collateral, whereas it caps the borrowing limit to just ₹2 lakh without a collateral. However, the interest rate and other charges remain the same, even if you give a collateral. The only benefit is a higher loan amount.

Other options Alternatives such as a loan against shares, insurance policies or gold loans are available in place of a travel or a personal loan. The advantage is that these products offer much lower interest rates compared to unsecured loans.

But for a travel or a vacation of a few days or weeks, your assets like shares or gold will get locked in for the entire loan tenure.

Also, any sharp price fluctuation in these asset prices may push you to pay back more or pledge more of these assets. Taking a loan on your credit card may also not help much. The loan amount is restricted to the unutilised card limit and interest rates are typically as high as a personal loan.It is also mandatory to take a loan from the bank with which you have the credit card.

Points to note The first step is to see if you really want long-term pain for short-term gain — for a short vacation of only a few days, you will end up repaying over a period of two to three years.

Besides, if you have other ongoing loans, the additional EMI burden may pinch you. Rishi Mehra, CEO, Wishfin.com says, “The Equated Monthly Instalment (EMI) should not pinch your regular expenses. Ideally, your EMI on a travel loan should not be anything more than 3 to 4 per cent of your total monthly income.”

Even as you vacation on a loan, you should be careful about your credit card spends during the holiday, as this is also a deferred payment option which will hit you only when you return.

Vikas Kumar, Co-founder LoanTap suggests that a better option could be to partly fund your travel expenses with a travel loan and swipe your credit card for the remaining spends. That way, your loan burden at high interest rates will be reduced and your credit card spends are also in check.

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