Travel loan interest rates: Your easy guide to smart borrowing

Planning a trip is always exciting, but the associated costs can quickly make you question your budget. If you find your vacation draining your savings, fret not. You can bridge the financial gap with a travel loan. It is a quick and convenient way to finance your vacation without the financial strain.

In return, lenders expect you to pay interest on the borrowed amount. They offer competitive interest rates for the same. Read on to learn more about travel loan interest rates and how they affect the borrowing cost.

What is a travel loan interest rate?
 

A travel loan interest rate varies across lenders based on the eligibility factors and their policies. Typically, the interest rate ranges between 10% to 18%. You can compare loan providers to check their competitive offers to get the best deal.

Mostly, lenders like IDFC FIRST Bank offer a travel loan with completely digital process with the following features:  

· You get a competitive interest rate at 9.99% p.a.

· You can get up to ₹10 lakhs instantly.

· Loans are disbursed in 30 minutes.

· You can enjoy zero foreclosure charges.

Paying attention to this vacation loan rate helps you smartly plan your loan application. Note that the lowest rate is reserved for applicants with a good credit profile.

Factors influencing the travel loan rate of interest
 

Travel loan rate of interest is not uniformly applicable for all borrowers. It is determined based on eligibility factors such as:

· Credit score

A credit score is often the first thing lenders check. A strong score reassures them of your disciplined repayments, which brings down the travel loan interest rate, and vice versa.

· Income and job stability

Your steady income helps gain lenders’ confidence. If you have a stable income record, you can finance travel with a vacation loan at a lower interest rate.

· Loan amount

The amount you borrow has a direct influence on the vacation loan rate you attract. A larger sum leads to a higher rate due to greater perceived risk, and the opposite holds true for limited borrowing.

· Repayment tenure

Shorter tenure signifies clearing the loan sooner. Hence, it attracts a better interest rate. Conversely, a longer tenure comes with a slightly higher interest cost as the lender’s risk extends over a longer period.

· Existing financial obligations

If a major part of your income already goes toward EMIs, lenders may adjust the travel loan rate of interest at a higher range to safeguard themselves against the risk of repayment.

How banks calculate vacation loan rates: Fixed vs Floating
 

Besides the travel loan interest rates, the interest structure also makes a huge difference to your repayment journey. Banks determine the calculation of EMIs based on your choice between a fixed and floating interest rate. Here’s how they work:

Fixed travel loan rate of interest
 

A fixed rate is offered as a constant rate against the travel loan. It remains unchanged for the entire tenure. Your EMIs stay exactly the same, regardless of what happens in the market. This makes planning your repayment easier with a rough calculation of EMIs.

Some lenders like IDFC FIRST Bank may also offer a monthly reducing fixed travel loan interest rate. In this case, the interest rate remains the same but is applied to a decreasing principal balance. This means your total interest and EMI go down as you pay off the loan.

Floating travel loan rate of interest
 

Also known as a variable rate, a floating travel loan interest rate is linked to an external benchmark like the RBI repo rate. The interest moves as the benchmark and general market conditions fluctuate. Your EMIs adjust accordingly. You pay more during high-rate periods but stand to benefit when the market rates fall.

Note: Most travel loans are offered at a fixed interest rate, but you can check with the lender to make your pick between a fixed and floating rate.  

How to get a lower travel loan interest rate
 

You can get a lower interest rate on a travel loan by strengthening your application. Here are effective ways to do that:

· Improve your credit score

Lenders reward responsible credit behaviour. Hence, a higher credit score above 700 is ideal to get a lower interest rate. It depicts timely repayments and low credit utilisation.

· Choose a shorter tenure

If your budget allows, opting for a shorter tenure helps you get a lower rate. While EMIs may be higher each month, the total interest outgo is lower.

· Keep your existing EMIs in check

If you have existing debt, try to repay as much as possible before financing travel with a vacation loan. This way, you reduce the debt-to-income ratio and attract a lower interest rate.

· Borrow according to your affordability

The amount you borrow today becomes a financial responsibility tomorrow. So, you want to realistically think about the required funds. The less you borrow, the lower the interest rate and vice versa.

· Compare lenders

Different lenders have varied promotional offers on vacation loan rates. It is worth comparing such offers to ensure you’re not missing out on a better interest rate.

EMI calculation for travel loan interest rate in India
 

Understanding how EMIs are calculated helps you see the real impact the travel loan rate of interest has on your monthly budget. Lenders use a standard formula to calculate EMI, including variables like the loan amount, tenure, and the applicable interest rate.

The formula is: EMI = P x r x (1+r) ^n/ [(1+r) ^ (N-1)]

Here, P stands for the principal amount, r indicates the applicable rate of interest, and N stands for the loan tenure. This is calculated against the interest rate, typically between 10%-18%.

For lenders like IDFC FIRST Bank offering interest rates starting at 9.99% on the FIRSTmoney instant travel loan, the EMI calculation goes as follows:

For this example, let’s assume the loan amount is ₹1,00,000 and the interest structure is fixed.

*The above calculation is for illustration purpose. Actual EMI may vary based on your offered rate and applicable fees and charges.

As is evident, the total interest payable increases as you lower the EMIs by stretching the tenure.

Cost considerations besides the travel loan rate of interest
 

While the travel loan interest rate plays a major role in shaping the loan cost, it’s not the only element. The overall loan cost is influenced by these additional charges:

· Processing fees

This is a small fee levied for processing your loan application. Even though it’s a one-time charge, it adds to the cost of borrowing.

· Prepayment/foreclosure charges

If you decide to close your loan early or prepay with variable income, some lenders may charge a nominal penalty against the interest.

IDFC FIRST Bank waives the foreclosure charge on its FIRSTmoney personal loan.

· Late payment penalties

Missing or delaying your EMIs not only affects your credit score but also results in additional fees. This is charged as a nominal percentage against the unpaid EMI.

· Stamping charges

This is a statutory charge subject to change as per state laws. It is applicable to the travel loan agreement.

· EMI bounce charges

If your EMI payment fails due to insufficient balance in your bank account or any other technical issue affecting your auto-debit, you incur an EMI bounce charge.

· EMI pickup charges

Some lenders may levy a small fee for manual collection of your EMI.

· Document-related charges

This covers duplicate issuance of no objection certificates, physical statement of account, and document retrieval.

Final words
 

You can prepare for a travel loan application with a much clearer mindset once you understand how the travel loan interest rate works. As is evident, the interest rate differs based on lenders’ offers and your eligibility. Boosting your eligibility is a sure-shot way of getting a lower interest rate.

You can also compare offers to get the best deal. Also, pay attention to other additional charges to get a clear understanding of the overall loan cost. With such thoughtful preparation, financing your travel becomes fulfilling and easier.

Make your dream vacation a reality with FIRSTmoney Personal Loan from IDFC FIRST Bank!

✅ Low Interest Rates starting at just 9.99% p.a., so your holiday stays within budget.

✅ Zero Foreclosure Charges. Close your loan anytime without foreclosure penalty.

✅ Instant Approval & 30-Minute Disbursal, perfect for those spontaneous getaways.

✅ 100% Digital Process. Apply anytime, anywhere, no paperwork required.

✅ Flexible On-Demand Loans to cover additional travel expenses with ease.