In a very short time, the festive season in India will draw upon us. Dussehra, Deepavali, Christmas and the New Year and travel will be on the top of our minds as soon as the monsoon allows us to do so. Or travel may be prioritised, even during the monsoon too.
While you may have the option to pay for your wanderlust, experts council that you look at all the pros and cons before paying for your vacation via a loan.
“The unprecedented boom in holiday travel after the easing of restrictions imposed during the pandemic led to the rise of TNPL (travel now, pay later) offerings,” says Anand Agrawal, Co-Founder & CPTO, Credgenics, about this new method of paying for travels. Easy access to finance and the flexibility to spread the payments over a term enables people to raise their travel budgets without much worry.
According to a survey by travel company Expedia, 44% of millennials and 49% of Gen Zers are interested in travel financing options, such as ‘travel now pay later’ loans. These generations are more likely to prioritise experiences over material possessions, and they see travel as an important part of their lives. However, they may not have the financial means to pay for it all upfront.
‘Travel now pay later’ loans allow millennials and Gen Zs to book and pay for their vacations in installments over time, making it easier for them to budget and plan for their travel expenses.
Youngsters, especially among millennials and Gen Z, are now getting used to easier access to credit across their day-to-day transactions and TNPL fits into their strong desire to explore both domestic and international destinations.
While earlier the plans were made as per fixed budgets and available funds, the plans today levy more focus on aspirations and experience, irrespective of the cost, with TNPL as an option.
Factors such as demographics and economic conditions play a crucial role in their decision-making process. This trend is particularly evident among individuals from the metro cities, who typically have a higher disposable income and are more likely to opt for travel loans.
“TNPL fosters a sense of affordability, enticing travelers to choose higher-priced packages or premium experiences,” says Yashoraj Tyagi, COO and CTO of CASHe, who cautions that the appeal of deferred payments leads to impulsive bookings, which encourages more spontaneous decisions.
TNPL loan sizes and tenures vary from case to case, with no one-size-fits-all category.
For CASHe, the average ticket size for TNPL is ₹4,500 whereas the upper limit offered on this payment method is up to ₹60,000 with a tenure ranging from 3 to 6 months. The duration is decided basis of the minimum salary of the individual and the loan amount one has signed up for. For example, an individual with INR 20,000 salary can avail TNPL loan of up to ₹2 lakhs and he gets a duration of up to 6 months to repay the same.
The loan size varies from platform to platform. The average tenures start from 3 months and can go up to 24 months depending on the loan amount and repayment ability of the customer.
Due diligence from the lender’s side too is not very trying and varies from platform to platform.
The specific income sources and credit streams required to qualify for a TNPL loan can vary depending on the provider and the terms of the loan. “Lenders often prefer applicants with a stable source of employment and a regular salary slip,” says Smruti Ranjan Samal, VP, Strategy & Product at KreditBee. If you are self-employed, you may need to provide tax returns or financial statements to demonstrate your income and the stability of your business.
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It's important to note that CIBIL scores are commonly used to check repayment capabilities, however, some TNPL providers or platforms may have their own eligibility criteria and may consider other factors in addition to credit scores. For example, other than credit score, KreditBee also considers a number of factors like income estimate, and social media score to determine repayment capacity.
Check if the TNPL provider considers CIBIL scores during the loan approval process. “While some might not, maintaining a decent credit score can still be your secret weapon to unlocking better loan terms and a smoother application process,” advices Manavjeet Singh, MD & CEO, CLXNS.
But while you may get your loan to travel to your dream destination, experts are unanimous that you need to think carefully and read the fine print, before availing such loans.
“TNPL can cause financial stress and debt due to high interest rates and delayed repayments. Overspending and financial overextension are possible outcomes if not managed prudently,” says Tyagi.
There are a few factors that need to be considered such as:
High interest rates: TNPL allows you to delay payment for a short period, but it comes with the obligation to pay interest, which can be quite high. While the concept is appealing, consumers must be prepared to bear the additional cost of interest regardless of its rate.
Credit score impact: Failure to make timely payments for TNPL loans can adversely affect your credit score. It's vital to be responsible and ensure prompt bill payments to maintain a healthy credit history.
Impulsive spending: TNPL encourages people of all groups to indulge in travel experiences without hesitation. However, this convenience may lead to impulsive purchasing and reckless spending. Consumers must be careful of the allure of delayed payments, as it can lead them to spend more than they originally intended. “It's essential to keep an eye on your finances to prevent overspending,” says Tyagi.
“One should keep in mind that mostly the TNPL schemes offer short repayment periods and heavy interests if not paid in time,” says Agrawal. Missed repayments also impact the borrower’s credit profile. Borrowers should opt for No cost EMI plan and the loan repayment time should be longer tenure.
Also, borrowers need to clarify the payment terms, penalties on repayment delays and any hidden terms.
“We encourage you to ask questions, seek clarity from your TNPL provider, and navigate your travel loan like a seasoned explorer. Remember, when you approach your TNPL adventure with wisdom and planning, you'll not only make cherished memories but also build a path to financial freedom!,” says Singh
Manik Kumar Malakar is a personal finance writer.
