Arranging a vacation is as easy as buying a smartphone, says Jatinder Paul Singh, senior vice-president and head (sales and distribution), leisure travel-outbound, Thomas Cook India. With travel firms and banks offering tie-ups through credit cards, customers can pay for the travel later, through equated monthly instalments (EMIs). But watch out for the cost, as such schemes may raise costs by as much as 30 per cent.
Travel agencies such as Thomas Cook India, as well as online agencies, provide an option to book tickets or hotels directly, through credit cards (with an EMI option). At the time of payment, customer can opt for tenures of three to 12 months. The amount will vary, based on the limit on customers' credit cards and the destination chosen. The cost is based on the interest levied by banks and the tenure selected. For credit card loans, most banks charge 24-36 per cent a year. Thomas Cook India, in partnerships with 10 banks, offers flexi-payment EMI holidays. "We have seen strong support for EMIs over the option of loans," Singh says.
Another option is a personal loan from a bank, for which the interest could vary between 14 per cent and 20 per cent. For such loans, most leading travel agencies have tie-ups with banks. For example, yatra.com has a tie-up with Citibank for personal loans for travel, at an interest of 14 per cent.
Or, you could take a holiday loan or a travel loan. For instance, Bank of India's Star Holiday Loan scheme offers loans of Rs 10,000-2 lakh without any collateral; for loans of Rs 2 lakh-5 lakh, collateral is required.
A travel loan may be used for expenses on airline, train or bus fares, accommodation and sightseeing, for self, spouse, children, family members and close relatives. The repayment period is two years and the interest is 3-4.25 per cent more than the base rate, which works out to about 14 per cent. One is also charged a processing charge.
You could also opt for a secured loan against illiquid savings such as fixed deposits, life insurance policies and Kisan Vikas Patra, says Adhil Shetty of bankbazaar.com. In this case, the interest rate is lower, say, 12 per cent, and customers can fix the EMI according to their convenience.
Earlier, Cox & Kings had such EMI schemes, but it discontinued the practice, as there weren't many takers, said Karen Anand, head (relationships). "The loan the customer has to service increases the cost of the holidays about 30 per cent. Customers realise is it better to pay the entire amount upfront and save money, rather than take a loan and travel on a holiday," he says.
As cancellation of tickets might mean a processing charge and interest for the credit period used, customers must avoid loans for unplanned travel, says Shetty. "Before opting for a loan, check the ticket cancellation policy of both the travel agency and the credit card company. Some companies do not allow partial cancellation or date modification," he adds.
It is better to save money in advance than to borrow and repay through the EMI route. A default in an EMI could result in a bad credit report; you might end up with a low credit score. If you need Rs 60,000 for a holiday, you could put aside Rs 10,000 every month, for six months. This would fetch you an interest of Rs 1,450, at 8.25 per cent. But if you borrow the same amount on EMIs, you will end up paying interest of Rs 2,473.68 through six months, at 14 per cent.