Most of us look forward to a holiday to a nearby — or far-off — destination in order to unwind, or explore unchartered waters. And in case you fall short of liquid funds, you may get tempted to borrow to fund the trip – either a personal loan or opting for the latest fad of travel now pay later (TNPL).
There is a growing prevalence of taking personal loan to fund your overseas holiday. Most financial advisors, more often than not, would recommend that one should refrain from taking loans for trips, since these holidays are personal, and hence non-essential, and dispensable.
“One should be careful in choosing type of debt. Credit card and personal loans are high-cost debts. There are certain repayment conditions in personal loan. So, if you want to plan for vacation, it is always better that you fund it through saving instead of going with personal loan money," said Preeti Zende, a SEBI registered investment advisor and Founder of Apnadhan Financial Services.
“Ideally loans should be taken only for creating some assets. So at least after paying interest at the end of the term, you have some assets created which will provide capital appreciation as well regular income,” she added.
However, some travellers have started to use other forms of credit to fund their holidays, for instance, through credit cards or schemes such as travel now, pay later (TNPL).
What are TNPL schemes?
In travel now, pay later, you book tickets and pay through equated monthly instalments (EMIs). It is effectively a loan you take while booking a trip and making the payment in instalments later over several months.
To offer these payment options, online travel aggregators join hands with banks, fintech companies, or sometimes, offer credit through their own fintech firms.
There are several online travel booking platforms which offer this option such as MakeMyTrip and Yatra.
Yatra offers TNPL plans along with LazyPay. Under this, you can book flights, hotels, holidays and bus on yatra via lazypay and pay back later, as mentioned on its official portal.
At MakeMyTrip, one can opt for at 0 percent interest and repay within 15 days to 18 months tenure. There is no KYC (know your customer) required. To be able to check eligibility, one needs to simply enter the mobile number. One has to enter the OTP to be able to do the booking, explains the official portal of travel aggregator.
Certain things to know
It is vital to note that different fintech firms have different credit limits which may extend to anywhere between ₹2 to 4 lakh. ZestMoney, for instance, gives an upper credit limit of ₹2 lakh, along with no-cost EMI option for a three-month plan.
At the same time, CASHe offers loans ranging between ₹15,000 to ₹4 lakh, with a loan repayment term of anywhere between three to 18 months.
But one must be apprised of the fact that if you default on the EMI, a penalty can be levied, thus impacting your credit score too.
“Such easy loans lead us to debt trap and reduces our savings which ultimately hampers the wealth creation,” added Zende.
And just as credit card, the credit range that is given tends to fluctuate, and is effectively a function of income, ability to repay and credit score.