Tour operators woo women travellers with Holiday-Now-Pay-Later schemes. Should you opt?

In the ‘Holiday-Now-Pay-Later' scheme if you default on paying instalments to the partnered NBFC after returning from the holiday your credit score will take a hit, which could affect getting loans in the future at the best interest rates.

International Women’s Day falls on March 8 and travel companies have begun wooing women travellers with exotic destinations and many offers. Tour operators like Veena World, Thomas Cook, Kesari Tours, Wander Womaniya and so on are offering tour packages and even financing options. Some tour operators have partnered with fintech lenders and non-banking finance companies (NBFCs), and are offering loans for travel. You can repay in 12 to 36 months after your holidays in equated monthly instalments (EMIs).

But are they worth it?

What’s the scheme?

Travellers with a good credit history are eligible to apply for 'Holiday-now-pay-later' schemes. The applicant's creditworthiness will be evaluated by the fintech lenders and NBFCs partnered with the travel firm. The traveller needs to pay 15-20 percent of the cost of their holiday package and the balance after returning from holidays to the fintech or the NBFC lender. If the entire remaining amount is paid in a lump sum to the lender there are no additional charges. But if you opt to pay in EMIs then the lender will charge interest.

The terms in the agreement of a ‘Holiday-Now-Pay-Later’ scheme are similar to a ‘Buy-Now-Pay-Later’ scheme. In the ‘Holiday-Now-Pay-Later' scheme if you default on paying instalments to the partnered NBFC after returning from the holiday your credit score will take a hit, which could affect getting loans in the future at the best interest rates.

Before we go ahead, Aparna Ramachandra, Founder Director of rectifycredit.com has a word of caution. “Consumers must know before borrowing that all these fintech lenders are providing personal loans by packaging them in different ways which are expensive and unsecured.”

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What’s the holiday package and how much is the cost?

Veena World has announced that it will conduct a women’s special tour in March. The cost for 8-day Europe tour is Rs 2 lakh (EMI Rs 11,136), 7 days of Dubai and Abu Dhabi at Rs 1.3 lakh (EMI Rs 7,327), 9 days of Australia at Rs 3 lakh (EMI Rs 16,704), 8 days of Kerala at Rs 51,000 (EMI Rs 2,992), 8 days Assam and Meghalaya at Rs 75,000 (EMI Rs 4,285) and more. The group tour price includes return airfare, transport, accommodation, all meals, sightseeing with entrance fees, driver-guide tips, travel insurance, services of tour manager and Visa fee (except for free visa countries). The single travellers don’t have to pay extra as a room partner from the group tour will be arranged. The EMI mentioned is for 24 months tenure. The interest rate is around 30 percent per annum.

Similarly, Thomas Cook and online travel operators such as Yatra, Make My Trip, Goibibo and EaseMyTrip are offering holiday packages on EMI. The travel companies have partnered with NBFCs such as Bajaj Finserv and Poonawala Fincorp to finance the holidays. According to this scheme, travellers have an option to pay for the tour after returning from the holiday.

Fintech lenders such as ZestMoney and Sankash have partnered with multiple online and offline tour operators to finance the holiday packages. Suppose you are taking a loan from a tour operator partnered with Sankash the tour costing Rs 2 lakh will have an EMI of Rs 18,667 for 12 months tenure. The interest cost will be around 20 percent per annum and additional one-time processing fees of Rs 3,999 will be incurred.

Also read | How tax on foreign tour spends on credit cards will affect your holidays

The trouble in charges piling up

The EMIs might appear small, but experts like Ramachandra say that they can balloon into something big and unmanageable.

With higher interest rates on such loans, the interest payout is higher. Suppose you took a loan of Rs 1 lakh for holidays at 25 percent interest per annum and two years tenure you will end up paying Rs 28,000 as interest payment at the end of the loan tenure. Similarly, on a Rs 2 lakh loan at 30 percent interest per annum and two years tenure, you will end up paying Rs 68,000 as interest cost at the end of loan tenure (refer to graphic).

“Personal loans from banks are much cheaper compared to holiday-now, pay-later schemes,” says Ramachandra. Top banks are charging interest rates of 10.50 percent onwards annually to consumers with good credit history on a personal loan of Rs 5 lakh with five-year tenure.

A bad score reduces your chances of getting loans in future. Parijat Garg, a digital lending consultant says, “Until she settles the outstanding amount it will be difficult to access credit from formal financial institutions; even if she manages to get a loan the rate of interest will be high.”

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Should you opt?

Rishi Mehra, CEO of Wishfin.com advises using part of the savings to finance leisure travel, instead of going for full financing with such a loan scheme. If you have good savings or can manage your leisure expenses without taking any finance, nothing is better than that. “But if you don't have enough finances to fund your leisure needs, go for a personal loan, but make sure to check and compare the rates being offered by various lenders to crack the best deal,” he says.

If you are looking for cheaper options, you can try getting a loan against fixed deposits or securities such as shares, bonds or mutual funds. “If we go a little deeper a secured loan against FD and gold can also be an option in addition to the personal loan. The loan amount here could be contingent on the value of the underlying savings/deposits,” says Mehra. However, he says these options should come last on the list.

Despite several loan options available to the borrower these days, Moneycontrol does not recommend taking a loan for fun activities such as a vacation. These loans, as financial planners say, are bad. A home loan, on the other hand, is a good loan as it gives you an asset at the end of the term. Here again, a large loan for a palatial home when all you need is say a two-bedroom-hall-kitchen, is again not desirable.