Personal Loan or Term Loan—What To Choose If I Want to Travel?
Know key differences between personal loans and term loans & find out which one is the best option for financing your travel expenses. Learn about interest rates, repayment terms, and eligibility criteria before making a decision!
Traveling is one of the most exciting and fulfilling experiences one can have. It allows you to explore new places, meet new people, and discover different cultures and ways of life. But for most people, the cost of traveling can look prohibitive because of expensive air travel, hotel accommodation and other expenses.
This is where a loan will come in handy. It can help cover the costs of flights, accommodation and other expenses, allowing you to travel without worrying too much. When it comes to taking out a loan for travel, many may be wondering what is the best option – a personal loan or term loans? Here, we will look at the differences between personal loans and term loans and evaluate, which is better option for financing a trip.
What Are Personal Loans?
A personal loan is an unsecured loan that is often offered quickly and with minimal documentation. This loan can be used for any personal need including funding a holiday, children’s education, or buying home appliances.
Personal loans are offered by all banks and non-banking financial companies. The terms and conditions on these loans, including interest rates, vary from lender to lender. The interest on such loans will generally depend on the borrower’s credit history and income.
The main advantage of a personal loan is that it is relatively easy to avail if the applicant’s credit score is decent and they have a regular income. Most importantly, personal loans do not have end-use restrictions, meaning it can be used for any purpose, including travel.
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Different Types Of Travel Loans
Lenders offer different types of travel loans including standard loans and flexi loans. A standard or term personal loan will have a fixed loan amount and tenure. In such loans, the EMI will also be fixed at the time of taking the loan. Since the amount of loan and tenure is pre-fixed, one can easily plan finances with such loans.
But travel normally involves unplanned expenditures. At times, the travel budget can be way higher than what you have planned. In such cases, a borrower can approach a lender for a flexi personal loan. This loan will work like a credit facility with a maximum credit limit.
The advantage of the flexi loan is that if your actual expenses during travel are more than what you initially planned, you can draw from the credit facility. It will work to your advantage even if the total expenses are lower than you planned as the lender will charge interest on the amount that is drawn and not on the total amount sanctioned.
The difference between the two loans is that in a standard loan, the lender will disburse the entire sanctioned amount, while in the case of flexi loan the lender will only sanction the limit and borrower can withdraw from the facility as per need. Also, in the case of a standard or term personal loan, the lender will charge interest on the approved amount, while in the case of the latter the interest will be charged only on the amount withdrawn.
So, which loan should you choose for financing your travel? The answer will depend on your specific needs and circumstances. Both standard loans and flexi loans have their advantages, the choice will depend on your priorities. If you want a tight control on your budget, then probably a standard loan is better. But if you want to save on interest cost then probably a flexi loan will be better, provided you don't spend more than budgeted.
More importantly, you should choose a lender that offers you greater flexibility and attractive interest rates. IIFL Finance, one of India’s largest non-banking lenders, offers personal loans of up to Rs 5 lakh at competitive interest rates. The company approves personal loans through a quick, digital process that can be completed within minutes. It even customizes the repayment terms to match the EMI schedule with the cash flow or income of the borrower.
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