Many dream of travelling and exploring the world, especially millennials and Gen Z, although the paucity of funds could be a dampener. But now we have firms that allow you to pay for your vacation via loans. ‘Travel now pay later’ or TNPL has emerged as a variant of BNPL (Buy now and pay later), which exists for buying goods. TNPL seems to be gaining traction. Here, we delve into the features of travelling on credit and whether you should be opting for such loans.
How TNPL works
Travel now and pay later covers not only your ticket cost but the whole tour package. Travel platforms such as Make my Trip, EasemyTrip and even IRCTC allow for pay later options, which are provided by fintechs, banks or NBFCs. Some banks and NBFCs offering this service are HDFC Flexipay in partnership with Make my trip and Bajaj Finance EMI card. The amount of the credit that can be availed will depend on the credit score and other criteria as decided by the lender.
The borrower may get two types of deals. One is where she has to repay the whole amount within a particular tenure stipulated by the lender, which is generally 15-30 days without any interest. However, if this due date is missed, then the lender charges an interest amount depending on the amount due. Second is opting for equated monthly instalments i.e., EMIs. The tenure for the EMI option ranges from 3 months to 24 months and the interest rate applicable may range from 18 per cent to 25 per cent. The interest rate may be higher for higher tenures. In addition, before crediting the loan amount to your account, the lender may charge some sort of processing fees also.,
Here’s an illustration to explain this: Say, Kabir plans to take a vacation from August 12 to August 15, 2023, and the tour package he is interested in costs ₹42,000. Kabir does not have enough money now and therefore plans to opt for pay later option (assumed to be Lazypay platform). The due date of the lender platform is September 1, with grace period till September 3. If Kabir pays his dues by September 3, no interest is charged. However, if Kabir opts for EMI scheme for a period of 9 months, then the EMI would be ₹5,064.12 at 20 per cent interest rate and interest component of ₹397.46 per month. However, if the EMI tenure is taken for 12 months, then the EMI would be ₹3,910.78 per month at 21 per cent interest rate and interest component of ₹410.78 per month.
No-cost EMI option
Many travel platforms also offer no-cost EMI option to customers on some select credit cards. This sounds like a very good deal but one must be careful while considering it. In the case of these no-cost EMIs, although they may claim zero per cent interest, a separate processing fees may be charged in lieu of interest. In some cases it may so happen that the discount applicable may be foregone by the merchant offering the service, who pays it in lieu of interest to the lender. A few websites like goibibo offer EMI option with no processing fee and give upfront discount of interest charged by the bank. However, it must be noted that customers cannot utilise the wallet balance and any other offer while availing no-cost EMI.
Should you go for it?
Travelling on credit is becoming a more common phenomenon now than ever and people are enticed to utilise the facility. You need to understand that this type of credit is a personal loan that attracts exorbitant rates of interest. This credit, once taken, will impact your credit score. One delayed payment is enough to pull down the credit score.
For those with tight cashflows, it is better to avoid any vacation travel on credit. It may lead to a high-interest debt trap. Your other investments and payments could be hurt or halted till you repay the TNPL loan. Only if you have a high income, and the discipline as well as surplus to make payments on time, should you go for TNPL schemes.