Top 5 Credit Options to finance your Dream Holidays

Traveling overseas for vacation is no longer limited to the privileged few. With rising income and aspirations backed by improved air connectivity to smaller or lesser-known beautiful countries and cities is encouraging more and more Indians to travel abroad. Also, improved credit access and availability of loan for low cibil score has further increased the reach of overseas travel to a larger population of Indians.

So, if you too dream of traveling overseas and need funds for that, let’s dig deeper and first check free credit score and then look at some of the best financing options for your overseas holiday plans:

Personal loan: Personal loan is probably the most popular option for travel financing. Some lenders have also come up with a travel/holiday loan segment, which is just a personal loan variant disbursed exclusively for travel-related purposes. Lenders usually sanction personal loans on the basis of the applicant’s credit score, monthly income, employer profile, existing EMI commitments, location, etc.

But remember that the chances of getting a personal loan for a low cibil score are usually lower, or you may be charged higher interest rates to act as cover for the bigger degree of risk involved with such applications. The processing of personal loans is relatively simple and quick, with most banks disbursing loans within 2–7 days of a loan application. While the maximum loan amount in personal loans usually goes up to Rs 20–40 lakh.

The personal loan interest rate can vary from 11% to 24% p.a., depending on credit scores and other loan eligibility factors. Always ensure to check free credit score before applying for a personal loan. Also, note that most lenders offer loan tenures of up to 5 years, but some may offer longer ones up to 6–7 years. And, mostly lenders usually charge a processing fee of up to 2%-3% on the loan amount, but some may waive it off during the festive and travel seasons.

Credit card swipes: Cardholders can repay their travel spending by the bill due date, which can be at least 20–50 days from the date of swiping the card. Alternatively, they can convert their entire dues or a part of it into EMIs.

All that one needs & should do is to ask the card issuer about EMI conversion. But it is better to check free credit score before doing so, as your EMI conversion request might not be approved if your score and repayment history depicts carelessness. Besides all that, remember that there is no requirement for fresh documentation, and the conversion is almost instant. The interest rate for such EMI conversion can range between 13 and 22% p.a., whereas the credit tenure can go up to 60 months depending on the card issuer. Just like personal loans, EMI conversions also come with a processing fee of 2%.

Banks have also come up with travel credit cards, which offer higher benefits on travel-related spending like ticket booking, hotel stays, dining, etc. than regular credit cards. These benefits can be available also in the form of travel vouchers, free air tickets, discounts, cashback, higher reward points on travel spending, etc.

Loan against credit card: This is a pre-approved loan offered to exist credit cardholders against their credit limit. This facility is usually offered to cardholders having a good repayment track record. Hence, for those requiring or hoping for this credit card loan for low cibil score, chances are low of availing it due to its selective and pre-approved nature.

For those eligible after completing the task of check free credit score and knowing that the credit score is high, note that your credit limit will decrease by the sanctioned loan amount. Being pre-approved, a loan against credit cards is usually sanctioned within the same day, sometimes within a few hours of making or submitting the loan application. The loan tenure can range anywhere between 3 months and 5 years. Their interest rates usually start around 11%-12% p.a.onwards, depending on the loan tenure and credit profile of the cardholder. As with other loans, a processing fee of up to 2% is charged on the loan amount.

Top-up home loan: Top up option can be specifically availed by existing home loan customers having a strong credit profile, which is assessed when you check free credit score. The loan amount cannot exceed the difference between the original sanctioned loan amount and the outstanding loan amount. Also, loan tenure cannot surpass the residual loan tenure. Interest rates of top-up home loans usually start from 8.7% p.a. onwards, whereas their processing fee can go up to 1% of the loan amount.

Lower interest rates and longer tenure makes top-up home loan an excellent financing option for existing home loan borrowers. Whereas remembering that it might be difficult to get this loan for low cibil score applicants, as the low score shows indisciplined repayment of loan EMIs and/or credit card bills. Hence, the lender can hesitate to give you another loan as a top-up.

Loan against securities: Loan against securities allows borrowers to raise funds by pledging their shares, bonds, life insurance policies, mutual funds, ETF, NSC, KVP, etc., as collateral. The borrowers continue to receive bonuses, dividends, etc., during the period of the pledge. The loan is usually offered as an overdraft facility, where a credit limit is sanctioned on the basis of the pledged securities. You are free to draw the entire sanctioned limit, or part of it as per your fund requirements and the interest is calculated on the drawn amount, not on the sanctioned limit. This facility allows one to raise funds without redeeming their long-term investments. Also, the role of credit score might not be very prominent in this as it is a secured loan, but still, it’s best to check free credit score before going ahead with the application.

What to do?

Ideally, you should use your own funds to go out for vacations and holidays, as all loan types come with associated costs in the form of interest cost, processing fees and other charges, besides dimmer approval chances if a loan for low cibil score is required.

So, start saving for your holidays in advance by investing regularly in ultra-short-term and other short-term debt funds to build a holiday corpus. Opt for loans to finance your vacation only if it is too important to be postponed. Once you have chosen or decided to go ahead with loans, first check with your bank and credit card issuers for any pre-approved offers. Then, visit the online financial marketplace to compare the offers available on various loan options based on your credit score, income and other eligibility criteria.

Also, try avoiding swiping credit cards in foreign locations, especially if you are planning to convert your dues into EMI. Swiping credit cards in foreign locations would additionally cost you 2–3.5% of the transaction amount as a foreign currency mark-up fee. Instead, avail a loan after doing a check free credit score, and use its proceeds to refill a prepaid forex card. These cards come with multiple currency denominations and do not charge a foreign currency mark-up fee.