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The Traveller’s Financial Tools

Author: Adhil Shetty/Friday, November 17, 2017/Categories: Cover Feature, Invest, Expert View

The Traveller’s Financial Tools

India has a fast-growing base of outbound tourists. As per a recent Forbes article, “Every year, more than 5.4 million Indians go abroad to conduct business, attend meetings, study, sight-see, shop, honeymoon and especially to visit friends and relatives (VFR).  With more than 20 million Indian nationals now living throughout the world (3.4 million in the US), the volume of outbound travel is increasing about 25% a year.”

Travel is an important life experience, and it is great that an increasing number of Indians are trying it. This is especially pleasing to hear since a survey last year had concluded that Indians are “the fourth most vacation-deprived country globally”, with 63% respondents saying they took fewer vacation days than they were eligible for.

So let’s say you’ve made up your mind about travelling to a foreign country soon. The financial aspects of this trip may be a concern for you since travelling abroad is rarely cheap. In this article, we’ll cover four tools you need to consider to make your travel possible and manageable.

Travel Loan

It is possible to borrow to fund your dream vacation. Many banks and NBFCs offer travel loans which are essentially a variant of the personal loan. The features, interest rates, and terms and conditions of travel loan would broadly match those of a personal loan. The typical travel loan size starts from Rs. 10,000. The upper limit could go up to Rs. 25 to 30 lakh. Various factors decide how much can be borrowed. The borrower’s credit score, past repayment record, and current ability to balance a new personal loan EMIs with existing debt, are key.

You need not be in the dark about your own credit score. In most cases, a customer first learns the words “credit score” is when he applies for a fresh loan or credit card. The lending institution then initiates a credit check to look into past borrowings. You don’t have to wait to apply for a new borrowing account. You can check your credit score for free online instantly. Lenders offer the best interest rates to customers with the highest credit scores (between 750 and 900).

As of today, interest rates on personal loans begin from 10.60%. The repayment tenure may be between 12 to 60 months. Apart from the interest costs, there will be processing fees applicable. The lender may ask for security or a loan guarantor as per its terms and conditions. The security may be either full or partial.

As such, the processing for personal loans are hassle-free and they can be availed paperlessly online. Travel loans may or may not have destination-based eligibility criteria, i.e. foreign travel only or domestic travel only. In case there are no limitations on using the funds, you may use them for traveling to any destination, both domestic and abroad. You should check with each bank to know the criteria for their loans.

Beyond travel loans and outside the ambit of the financial sector, you also have the option of financing your travel through tour operators. Some operators offer financing schemes that will help you make your trip. Once back, you can repay the loan as per the agreed conditions. The schemes typically tie up with NBFCs and financial institutions to provide the funding for tickets, accommodation, food, entertainment, etc. The repayment tenure may range from one to five years. However, the funding eligibility may be significantly lower than that of a personal. The interest rate you pay is similar to personal loans. Once the travel is financed and completed, you can return and begin paying EMIs.

Travel Cards

So let’s say you’ve received your funding. Now you need a reliable instrument through which you can spend this money. Enter forex cards.

While you should carry some cash with you abroad, you should also load some of your travel fund on to a prepaid card. Cash has its benefits. But in a foreign land, losing your wallet could put you in a very difficult situation. If you have money locked in a prepaid card, it can be protected even if the card is lost. Most banks offer forex cards that you can buy and load up with the currency of the country you’re flying to. A forex card would also allow you to deposit multiple currencies into the same card, making it easy for you to transact seamlessly during a multi-nation journey.

The card can be used to make POS (point of sale) purchases, online transactions, or to withdraw cash from ATMs. What’s more, you can also manage the card’s balance with its self-care portal. The card allows you to set a PIN to complete transactions. You may also be provided a back-up card that you can activate if your primary card is irretrievably lost during travel. You can avail this travel card by approaching a bank branch that stocks them. By filling out a form and providing a debit mandate, you can receive the card and start using it within a working day. A small processing fee may be charged towards loading the card. Additionally, the card may also come bundled with a travel insurance plan that may cover such expenses as hospitalisation, loss of baggage, emergency assist, etc. Once you return from your trip, you may simply encash the card’s balance back.

Lastly, you may be better off buying forex (either as cash or as a prepaid card) with authorized banks and forex institutions in your city. You may visit them well before your travel and have the chance to compare the forex rates on offer. You should try to bargain for a better deal.

International Card

Should you need access to further funds on your trip, you need your credit or debit card to work. An international card – which can be either a credit card or a debit card – is activated to help you transact abroad. There are two strands of thoughts to explore when it comes to using credit cards abroad.

The first is that you want to use your credit card abroad only for emergencies. You decide that your cash availability and forex card provide for all your requirements during the journey. But if you find yourself short of money, you may use your credit card and settle emergency requirements, either through card swipes or ATM withdrawals. In such a case, you may need to determine the associate charges for POS and ATM transactions. The charges are for currency conversion, foreign transaction charges, and cash advance fees for ATM use. You must carry out these emergency transactions to the limit that you may comfortably repay on your return. Similarly, for using your debit card for POS and ATM transactions, you may be charged a transaction fee. You must connect with your bank to ascertain the limits of these charges to avoid unpleasant surprises when you come back.

The second thought you must explore is that you may be looking to use your credit card to fund your trip and then settle the balance through card EMIs. This isn’t the ideal way to use your credit card. Credit card debt is one of the most expensive forms of debt you will undertake. Its monthly interest rates may range between 2-3%. This may sound harmless. But annualized, we’re talking of an interest rate of 24-36%, which is a heavy interest rate to pay on your balance. Hence you may be better off taking a personal loan where interest rates as of today start from 10.60%.  If you do decide to fund your journey with your credit card, make sure to not keep the debt outstanding over a long period of time and settle it as quickly as you can in order to avoid paying heavy interest costs.

Travel Budgeting & Allocation

Finally, there’s the matter of travel budgeting. Foreign travel entails heavy costs, so you would want to get the most bang for your buck. Here are a few things to keep in mind.

Make your bookings early. Airfare and accommodation will constitute a large part of your budget when you’re going abroad. You can sensibly lower costs by finishing your bookings ahead of schedule. Buying tickets too close to the date might require you to spend a larger part of your budget.

If you plan on visit tourist hotspots, it would be advisable to research them beforehand through the internet. By booking your visits early, you may be able to earn online or group discounts. When in doubt, ask an expert. It could save you lots of money.

Take care of nutrition. Food is often expensive in foreign lands, but you need to meet your dietary needs in order to remain healthy and to enjoy your holiday. While on tour, make sure your nutrition needs are adequately met and that you don’t have to skip meals to save costs. Carry food from home if it helps your budget.

Insure your travel adequately. Plenty could go wrong in a foreign land. You could fall ill, have an accident, get hurt, and require medical assistance. You could lose your baggage. You could get robbed. Travel insurance protects you against many of these risks, so do not leave it out of your travel budget. 

The writer is CEO, BankBazaar.com

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Adhil Shetty
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