Travel Loan: A complete guide to eligibility, documents, and interest rates

Planning a dream vacation, but are financial constraints delaying it? You can still go ahead with your trip, which you have been eagerly waiting for a long-time, as banks and financial institutions offer loans specifically for the purpose. 

A travel loan is just another form of personal loan. But it comes with lower interest rates. These short-term loans are given to salaried individuals, self-employed persons, including professionals, and business persons, depending on their income levels. Here is a summary of how these loans are disbursed, the charges, interest rates and other important information.

Who is eligible for a travel loan and how much is the interest?

Salaried individuals in the age group of 21-60 years can apply for the loan. The minimum age limit is higher for self-employed persons, business persons and professionals, which varies with each lender. Salaried individuals and self-employed professionals with at least two years of experience are eligible for the loan.

You must have had a job for at least two years and should have a minimum one-year experience with your current employer to avail the loan. Some banks specify that business persons should have been in the same line of business for five years and professionals must have been in practice for three years. This is done to assess the stability of income.

The minimum income requirement varies with each lender but you must earn at least ₹15000 per month to get the travel loan. While most lenders have a standard eligibility criterion for salaried individuals, the requirements vary for self-employed persons and those engaged in business. Lenders provide such loans to the self-employed and business persons depending on their annual income, turnover and profit after taxes.

The interest rate starts at 10.5% per annum and goes up to 25%. Do remember that your credit score plays an important role in determining the rate of interest. The higher the score, the lower the rate of interest.

How much loan can one avail and what are the repayment options?

You can avail a travel loan of as low as ₹30000. Lenders offer a maximum of up to ₹50 lakh as loan. Repayment, like in the case of other loans, is in the form of EMIs (Equated Monthly Instalments). But travel loans are essentially short-term advances with a tenure of one-year to six years. But some NBFCs (non-banking finance companies) offer loans with a tenure of as low as three months.

What are the documents that are needed for processing the loan?

To avail a travel loan, the following documents are required:

Identity proof: Copy of Aadhaar card/ Voter ID/ Driving License/ Passport

Address proof: Copy of Aadhaar card/ Voter ID/ Driving License/ Passport

Income proof: Bank statement for the previous three months

Two latest salary slips/current dated salary certificate with the latest Form 16

What should one watch out for in such loans?

Though the interest rates for these loans are lower than personal loans, the processing fee is quite steep. The processing fee varies with each lender but starts at 2% of the loan amount and can go up to 5.5%. Borrowers have to also pay a GST of 18% on the fee.

Borrowers should read the fine print when it comes to foreclosure charges. Some lenders have a lock-in of 12 months for these loans. This means that you cannot close the loan for up to a year. Lenders typically fix a maximum percentage of the outstanding principal amount as part prepayment during a year. The minimum part-payment amount should be greater or equal to two months EMI. Foreclosure charges vary but can go up to 5% of the principal outstanding at the time of foreclosure.

What happens if you postpone your travel?

If you postpone your travel after getting the loan, you can either keep the amount for your future vacations or opt for foreclosure. But foreclosure carries a charge. Some lenders have a lock-in for these loans and so you can close it only after the minimum waiting period.

Allirajan M is a journalist with over two decades of experience. He has worked with several leading media organisations in the country and has been writing on mutual funds for nearly 16 years.