With more and more millennials opting to travel abroad on credit, the travel or holiday loans segment is growing faster and more profitably than others. The segment forms 30 per cent of all new loans being disbursed at banks and NBFCs at present, up from less than 10 per cent five years ago, according to several financial institutions.

The segment is currently not tracked separately, but is a part of personal loans offered by financial institutions. However, lately, banks are contemplating to track this segment separately after witnessing rising demand for holiday-based loans.

Easy EMIs

Starting with State Bank of India to NBFCs such as Bajaj Finserv, travel buffs are being attracted with easy EMIs and cheaper interest rates on personalised travel loans. Interest rates for such loans availed through banks vary from 10.55 per cent to 15 per cent, compared to higher rates of 20-25 per cent on loans taken through credit cards.

Rajesh Magow, Co-Founder and CEO India, MakeMyTrip, told BusinessLine that the increase in demand for travel loans is due to the growing aspirations of Indian consumers, which is matched by the convenience of booking holidays online through easy financial help available for travel.

“Just as NBFCs revolutionised the consumer durable loan category over the last decade helping aspiring Indians purchase flatscreen TVs and smart phones, the same is going to unravel next in the travel category. We are at the forefront of helping customers get travel loans with ease and without saddling them with interest for financing their travel,” he said, adding that personal loan for travel and consumer durables is the fastest-growing loan portfolio, with approximately 30 per cent of all new loans at banks originating for it.

MakeMyTrip has tied up with fintech start-ups such as EarlySalary and Capital Float, to offer instant travel loans at zero EMI. Cox & Kings has tied up with SBI, IndusInd Bank and others, while SOTC Travel has also tied up with a few new-age fintech start-ups.

Discretionary savings

While millennials are typical borrowers of travel loans, customers with a stable income and having at least 10 years of work experience, are also opting to travel on credit, as they do not have too much discretionary savings to spend in one go, say banking experts.

Akshay Mehrotra, CEO and Co-founder of EarlySalary, said it introduced a feature called ‘Travel Now and Pay Later’ in December 2018, and thousands of customers have already used the feature, where loans are offered at zero cost EMI for three months to customers, which is different from personal loans. But are holiday loans profitable for financial institutions, compared to other unsecured loans?

Institutions feel that it depends on the type of travel. Anuj Kacker, COO & Co-founder MoneyTap, said holiday packages are generally profitable.

However, when it comes to regular domestic travel, it may not be as profitable due to high cancellation and small ticket sizes.

“If the cancellation is done from the customer’s end, the lender is left with no choice but to collect the money from the travel aggregators,” he said.

Aditya Kumar Founder and CEO, Qbera.com, meanwhile, is of the view that travelling acts as a signal of affluence, thus reducing the perceived risk of providing unsecured loans to such borrowers, thereby increasing profitability. He also said that unlike personal loans, travel loans are extended to only salaried individuals, who typically exhibit low delinquencies, thus making the segment profitable.