Traveling regularly can reduce your stress, improve your physical health and enhance your understanding of the world around you. But travel can also be expensive.
It’s no wonder that the buy now, pay later app trend has made its way to the tourism industry. But are travel now, pay later options worth it? In most cases, the costs may outweigh the benefits.
How Buy Now, Pay Later Travel Apps Work
There are many ways to finance a vacation. One of the more obvious options is to use a credit card. Simply use your card to pay when you book, then either pay off the balance in full or make smaller payments over several months.
Alternatively, some people choose to take out a vacation loan — another name for a personal loan they can use to pay for their vacation. But personal loans require you to submit an application, provide documentation in some cases and wait at least a day or two — but often more — to get the funds you need.
BNPL travel services function similarly to a vacation loan, but the application, approval and funding all occur at the point of sale, which is when you check out.
Instead of paying the full amount due when you complete your purchase, you’ll pay off the balance every month. The quick application and approval process can be more convenient than a personal loan, and because payments are fixed, it can be more appealing to some than a credit card.
“If you can qualify for a competitive rate, BNPL service can be a good alternative to credit cards because the fixed monthly payments help you keep your budget on track and avoid the temptation of just paying the minimum on your monthly credit card statement,” says Andrew Latham, a certified personal finance counselor and managing editor at SuperMoney.
BNPL services are typically provided by third parties such as Affirm and Uplift, which work with travel brands.
If you’re booking travel with a provider that offers this payment option, you’ll typically supply some information about yourself, and the loan provider will run a credit check. If you’re approved, you’ll get an offer with an interest rate and repayment terms. If you accept the offer, the lender will pay the travel provider the full amount due for the reservation, then you’ll make payments to the lender as agreed.
Benefits of Travel Now, Pay Later Apps
The biggest reason to consider using a BNPL travel service is the convenience. If you can’t afford to pay the full amount now, using one of these services makes it so you don’t have to apply for a personal loan separately or use your credit card and lose that available credit for your everyday spending.
Also, unlike most retail-focused BNPL apps, you may have six, 12 or even 18 months to pay off your balance instead of a handful of weeks.
Drawbacks of Travel Now, Pay Later Apps
While these services can be convenient, many of them charge interest, which can be as high as 36%. This is in stark contrast to most retail-focused BNPL apps, which don’t charge interest at all.
“(They’re) so easy and convenient they can tempt you to spend more than you can afford, which can lead to an ugly cycle of debt, missed payments, damaged credit and even bankruptcy,” says Latham.
Even compared with credit cards and personal loans, the interest rate on a travel now, pay later app can be high. According to the Federal Reserve, the average interest rates on credit cards that assess interest and two-year personal loans are 16.3% and 9.58%, respectively.
That’s not to say you can’t get lower rates with a travel now, pay later program. But it’s a good idea to compare costs with other options before you move forward with one.
The other potential issue is that not all services offer the option to travel now, pay later without a hard credit check. While one hard credit inquiry typically won’t affect your credit score by much — FICO says it’ll knock fewer than five points off your score — multiple hard credit checks in a short period can have a compounding negative effect.
So if you use multiple services to book different parts of your trip, it could damage your credit score.
These services give you more time to pay back what you owe compared with similar retail apps, and that means you’ll likely still be making payments on your last trip when you want to get ready to book your next one. If you’re not careful, you could end up paying off multiple trips at the same time.
“You’ll enjoy your trip more if you are not bothered by the enormous amounts you’ll pay after it,” says Anton Radchenko, founder of AirAdvisor, a service that helps consumers get compensated for delayed, overbooked and canceled flights. “You’ll be more comfortable spending the money you have on hand because you can control it.”
Finally, if you end up needing to cancel your trip, some travel providers like airlines may give you a voucher for future use instead of a cash refund. This means you could end up paying off a trip that you didn’t get the chance to take.
Alternatives to Travel Now, Pay Later Services
If you want to book a trip but don’t have enough cash to pay for it in full, BNPL travel apps may be tempting. But there are other options available that could potentially save you money.
— Credit card rewards: Many travel rewards credit cards offer welcome bonuses worth hundreds of dollars, which you can use to book flights, hotels, rental cars and more. With some cards like the Capital One Venture Rewards Credit Card, you can even get the card, book your trip, then use miles earned with your welcome offer to get a statement credit up to three months later.
— 0% APR credit cards: Another option is to apply for a new credit card that offers a 0% annual percentage rate promotion. Depending on which card you choose, you could get up to 20 months to pay off a balance without paying any interest. In this scenario, you’ll still be paying off debt over time, but you could end up saving hundreds of dollars on interest because of the 0% APR promotion.
— Budget-friendly travel services: There are many services and websites that help travelers find deals on flights, hotels, rental cars and more. Look up apps and services such as Scott’s Cheap Flights, Hopper, HotelTonight, AutoSlash and others that can help you make your trip more affordable and help you avoid borrowing money.
— Wait and save: Using a BNPL service may make sense if you have no choice but to travel in a hurry and can’t afford it, says Radchenko. But if you can wait, it’s generally not worth it. While it doesn’t sound as fun to put off your travel plans, it may be the best approach for your budget. Do some research on your trip to find out how much it’ll cost you and when you’ll need the money to book the flight, hotel and other aspects of your trip. Then start setting aside money every month so you’ll have the cash when you need it.
Tips for Using Travel Now, Pay Later Apps
If you end up deciding to use a BNPL service to book your trip, make sure you at least shop around and compare all of your options before you proceed.
If you’re ready to book, read the fine print of what’s expected of you during the application process, how it’ll affect your credit and what it’s going to cost you.
Once you’ve accepted the loan, look for ways you can pay it off early. Not only will this save you on interest charges, but it’ll also free up cash sooner, which you can use to start saving for your next vacation.
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