Duncan Kariuki

5 things to consider before applying for a travel loan Traveling offers one an opportunity to escape from the daily routine and explore the World. Travelers seem to always come back with happy memories, new experiences, and re-energized. According to Forbes, travelling even boosts one’s mental well-being. But travelling can be expensive. Airfare, accommodation, cabs, guides, and everything else costs money. Thus, some resort to borrowing to fund their expedition. But is such a decision wise? What should one have before applying for travel loans? And what other options can one pursue? Why people take travel loans People take travel loans for various reasons; Some take an unplanned break from work and decide to go on vacation. Since they hadn’t budgeted for travel, they are forced to take a loan. Some get invitations from traveling parties on short notice when they haven’t saved enough money - yet they can’t say no as they may look bad in the eyes of friends. There also people who are fond of borrowing and will take loans for basically everything- including luxury tours. Who is eligible for a travel loan? Like other loans, one has to meet the following set eligibility criteria to qualify for this advance: Annual Income: Most banks ask for a minimum of S$20,000 as annual income for citizen and permanent residents and S$45,000 minimum for foreigners. Relationship: Some banks only approve lending to those who hold accounts with them and are in their good books. Age: Applicants must be of a certain minimum age (some banks loan only those aged 21 years and above though a few start at 18 years). Employment status: Salaried professionals, the self-employed, contract/temporary workers and businessmen can apply for this financial assistance. Residency status: Some moneylenders only issue travel loans to Singapore nationals and permanent residents. Collateral: A borrower maybe required to furnish adequate collateral to his/her lender. 5 factors to consider before applying for a travel loan Before approaching the lender for the loan, one should answer several questions so as to ensure that it doesn’t later on become a pain; 1. Interest Rate Offered While it’s true that travel loans generally come at a lower rate compared to credit cards, different institutions quote different rates. A higher rate makes the venture more expensive and may mess up one’s budget once repayments fall due. 2. Ability To Pay Is there space for another loan in the budget? If the salary is already overcommitted, it would be unwise for one to add to his debt burden as it may mean diverting money set aside for other important undertakings such as savings. However, there’s nothing wrong with travelling on debt if one has sufficient income streams. 3. Can the Trip Wait? Needless to say, it’s better to use own money for such spending since no cash inflows are expected from them in future. Therefore, one can consider postponing the trip until such a time when they have made enough savings to cater for the trip, instead of lumping up extra debt. 4. What about Other Sources? As way of reducing the cost, one can consider borrowing from other interest-free sources such as friends and relatives. Such credit is not only cheaper but also more flexible as it’s possible to negotiate a longer payment period. 5. What about the Eligibility? Even before everything else, individuals should check the conditions set by the target financiers and ensure they meet them. That’s because bankers are very strict when it comes to lending money as a precaution against risky borrowers. Credit Card Debt vs Personal Loans Compared with credit card borrowing, a travel loan has several winners: It has a lower interest rate compared with credit cards so it’s a much cheaper source of funding. Like any other personal loans, they have a more flexible repayment schedule and easier terms. One can borrow the full amount needed for the trip while a credit card loan amount cannot exceed the available card limit. On the other hand, using a credit card comes with specific benefits such as purchase protection, warranties, rewards points, travel benefits etc.  Using a Credit Card and a Travel Loan It’s possible to enjoy the best of both worlds.. Since a credit card has extras such as reward points and insurance, one can still use it to cater for his expenses while away. On the other hand, the loan has a lower interest rate plus friendlier payment terms thus, once home, the borrower consolidates the credit card advance into a travelling loan- provided their financier allows it. Conclusion Travelling is fun in many ways. However, the involved costs can sometimes make it appear out of reach making travel loans a worthwhile consideration based on the circumstances. But it’s important for the borrower to answer all the important questions including whether they’ll be able to repay the advanced money and whether there could be other better ways of financing a trip- before signing up for such a loan. Otherwise, with proper calculations, travel loans are a handy option for ardent adventurers.