Source: The Economic Times.
Planning an exotic vacation with your family, but falling short of funds? Don't worry - a travel loan can solve your problems. While all banks offer personal loans (which you may use for travel purposes), few banks offer loans meant specifically to meet your tour expenses for domestic and overseas travel. Also, several tour operators have tie-ups with banks, which extend loans for a specific tour package. So, you can either plan your own holiday and approach a bank directly for a travel loan, or you can book a holiday package with a tour operator and then make use of the EMI facility. However, you need to find out which of these two options is more cost-efficient and suited to your needs.
Loan Amount
Certain public sector banks offer specific loans to meet travel expenses like cost of ticket, hotel stay, visa, airport tax, purchase of Basic Travel Quota, etc. For example, SBI provides an 'Easy Travel Loan', while Bank of Baroda (BoB) offers 'Baroda Desh Videsh Yatra Loan'. If you opt for an SBI travel loan, the minimum loan amount is Rs 24,000, while the maximum is 12 times the net monthly income for salaried individuals and pensioners, and one year's net annual income for selfemployed professionals. If you opt for a BoB loan, the minimum loan amount is Rs 25,000, while the maximum is Rs 2 lakh (for domestic travel) and Rs 10 lakh (for overseas travel).
On the other hand, if you book a holiday package with a tour operator, you can get your entire trip financed by a bank (maximum loan amount varies from Rs 2-3 lakh). For example, SOTC of the Kuoni Travel group has a tie-up with Kotak Mahindra Bank while Cox & Kings has tied up with Citibank, and Raj Travels has a tie-up with State Bank of Patiala to finance their respective tour packages. ICICI Bank funds packages offered by Travel Mart and SOTC, with the same terms and conditions as personal loans.
Interest Rate & Tenure
If you directly approach a bank for a travel loan, it generally works out cheaper than opting for EMI facility offered by tour operators, since interest rate is usually lower for the former. SBI currently offers an interest rate of 15.25% p.a. on a daily reducing balance while BoB offers 15% p.a. Meanwhile, interest rate for an SOTC package varies between 14% and 16% p.a. (interest rate is lower for lesser tenure) while Cox & Kings offers 16.5% p.a. on a reducing basis. While SBI offers a long repayment period of up to 48 months, BoB has a maximum of 36 months. Similarly, SOTC allows you to pay in 12/24/36 EMIs while Cox & Kings offers greater flexibility with 6/12/18/24/30/36 EMIs. In case you decide to prepay your loan, SBI and BoB don't levy any prepayment penalty. However, SOTC and Cox & Kings do levy a prepayment penalty, which is around 4% of the outstanding loan amount.
Other Charges
Taking a travel loan directly from a bank has its disadvantages in terms of processing/documentation charges and margin amount. While SBI levies a processing charge of 1% of the loan amount, BoB charges 1.5% of the loan amount. In addition, BoB levies documentation charges of Rs 100-200. Moreover, for loan above Rs 50,000, 10% of the amount is charged as margin money, and third-party guarantee or collateral security is also required. On the other hand, if you opt for EMI facility offered by tour operators, no processing/documentation charges are levied and no margin money or security is required. But tour operators levy booking charges of Rs 15,000-20 ,000 per person.
Eligibility & Documents
If you approach a bank for a loan, you need to fulfil several eligibility criteria. You'll be eligible for a loan if you're an employee of state/central government , PSU/public limited company, reputed institution or MNC with minimum 1-2 years of service; or self-employed professional or businessman with minimum two years stable business. The documents required include latest salary slip and Form 16 (for salaried individuals) or I-T returns for last two financial years (for self-employed individuals); copy of ticket; copy of invoice containing ticket fees & insurance charges; copy of passport and visa (for overseas travellers).
The eligibility criteria and documents required are much less if you opt for EMI package offered by tour operators. Anyone with a minimum net income of around Rs 15,000 per month and having a good credit history can opt for such packages, says an SOTC official . After booking a tour package, you have to submit your salary statements and identity/address proof to the tour operator, which sends these documents to the bank for approval of loan.
Weigh Your Options
So, are you better off by approaching a bank directly for a travel loan, or should you opt for EMI offered by tour operators? The former option may work out cheaper in terms of interest rate and absence of prepayment penalty, but it may be more time-consuming and cumbersome due to the huge amount of paperwork involved. On the other hand, Sunil Gupta, COO, SOTC & Kuoni Holidays, feels the benefit of approaching a tour operator is that "they need far less documents, loans are pre-approved up to an amount and enjoy fast-track sanctions."
Implications Of Cancellation
In case the tour operator cancels the tour for some reason, an alternative tour date will be set. If you agree to go on that date, nothing will change in terms of the loan and EMI. But, if you don't agree to go on that date, the tour operator will refund the entire amount, including the initial Rs 15,000 or Rs 20,000 booking charges. In case the customer decides to cancel the tour due to personal reasons, when the loan has already been activated, it cannot be cancelled. The customer will have to forgo the initial booking charges plus he will have to pay all the EMIs on a regular basis, even if he doesn't opt for the tour package. In effect, the customer will have to bear the entire tour expenses, without having gone on the tour at all!! But, tour operators claim that in certain special cases , if they are convinced that the reason for tour cancellation is genuine (example, tragedy in the family etc), they may allow loan cancellation, but initial booking charges will still have to be foregone.
Planning an exotic vacation with your family, but falling short of funds? Don't worry - a travel loan can solve your problems. While all banks offer personal loans (which you may use for travel purposes), few banks offer loans meant specifically to meet your tour expenses for domestic and overseas travel. Also, several tour operators have tie-ups with banks, which extend loans for a specific tour package. So, you can either plan your own holiday and approach a bank directly for a travel loan, or you can book a holiday package with a tour operator and then make use of the EMI facility. However, you need to find out which of these two options is more cost-efficient and suited to your needs. Loan Amount
Certain public sector banks offer specific loans to meet travel expenses like cost of ticket, hotel stay, visa, airport tax, purchase of Basic Travel Quota, etc. For example, SBI provides an 'Easy Travel Loan', while Bank of Baroda (BoB) offers 'Baroda Desh Videsh Yatra Loan'. If you opt for an SBI travel loan, the minimum loan amount is Rs 24,000, while the maximum is 12 times the net monthly income for salaried individuals and pensioners, and one year's net annual income for selfemployed professionals. If you opt for a BoB loan, the minimum loan amount is Rs 25,000, while the maximum is Rs 2 lakh (for domestic travel) and Rs 10 lakh (for overseas travel).
On the other hand, if you book a holiday package with a tour operator, you can get your entire trip financed by a bank (maximum loan amount varies from Rs 2-3 lakh). For example, SOTC of the Kuoni Travel group has a tie-up with Kotak Mahindra Bank while Cox & Kings has tied up with Citibank, and Raj Travels has a tie-up with State Bank of Patiala to finance their respective tour packages. ICICI Bank funds packages offered by Travel Mart and SOTC, with the same terms and conditions as personal loans.
Interest Rate & Tenure
If you directly approach a bank for a travel loan, it generally works out cheaper than opting for EMI facility offered by tour operators, since interest rate is usually lower for the former. SBI currently offers an interest rate of 15.25% p.a. on a daily reducing balance while BoB offers 15% p.a. Meanwhile, interest rate for an SOTC package varies between 14% and 16% p.a. (interest rate is lower for lesser tenure) while Cox & Kings offers 16.5% p.a. on a reducing basis. While SBI offers a long repayment period of up to 48 months, BoB has a maximum of 36 months. Similarly, SOTC allows you to pay in 12/24/36 EMIs while Cox & Kings offers greater flexibility with 6/12/18/24/30/36 EMIs. In case you decide to prepay your loan, SBI and BoB don't levy any prepayment penalty. However, SOTC and Cox & Kings do levy a prepayment penalty, which is around 4% of the outstanding loan amount.
Other Charges
Taking a travel loan directly from a bank has its disadvantages in terms of processing/documentation charges and margin amount. While SBI levies a processing charge of 1% of the loan amount, BoB charges 1.5% of the loan amount. In addition, BoB levies documentation charges of Rs 100-200. Moreover, for loan above Rs 50,000, 10% of the amount is charged as margin money, and third-party guarantee or collateral security is also required. On the other hand, if you opt for EMI facility offered by tour operators, no processing/documentation charges are levied and no margin money or security is required. But tour operators levy booking charges of Rs 15,000-20 ,000 per person.
Eligibility & Documents
If you approach a bank for a loan, you need to fulfil several eligibility criteria. You'll be eligible for a loan if you're an employee of state/central government , PSU/public limited company, reputed institution or MNC with minimum 1-2 years of service; or self-employed professional or businessman with minimum two years stable business. The documents required include latest salary slip and Form 16 (for salaried individuals) or I-T returns for last two financial years (for self-employed individuals); copy of ticket; copy of invoice containing ticket fees & insurance charges; copy of passport and visa (for overseas travellers).
The eligibility criteria and documents required are much less if you opt for EMI package offered by tour operators. Anyone with a minimum net income of around Rs 15,000 per month and having a good credit history can opt for such packages, says an SOTC official . After booking a tour package, you have to submit your salary statements and identity/address proof to the tour operator, which sends these documents to the bank for approval of loan.
Weigh Your Options
So, are you better off by approaching a bank directly for a travel loan, or should you opt for EMI offered by tour operators? The former option may work out cheaper in terms of interest rate and absence of prepayment penalty, but it may be more time-consuming and cumbersome due to the huge amount of paperwork involved. On the other hand, Sunil Gupta, COO, SOTC & Kuoni Holidays, feels the benefit of approaching a tour operator is that "they need far less documents, loans are pre-approved up to an amount and enjoy fast-track sanctions."
Implications Of Cancellation
In case the tour operator cancels the tour for some reason, an alternative tour date will be set. If you agree to go on that date, nothing will change in terms of the loan and EMI. But, if you don't agree to go on that date, the tour operator will refund the entire amount, including the initial Rs 15,000 or Rs 20,000 booking charges. In case the customer decides to cancel the tour due to personal reasons, when the loan has already been activated, it cannot be cancelled. The customer will have to forgo the initial booking charges plus he will have to pay all the EMIs on a regular basis, even if he doesn't opt for the tour package. In effect, the customer will have to bear the entire tour expenses, without having gone on the tour at all!! But, tour operators claim that in certain special cases , if they are convinced that the reason for tour cancellation is genuine (example, tragedy in the family etc), they may allow loan cancellation, but initial booking charges will still have to be foregone.
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