Buy now, pay later financing options offer a flexible alternative to traditional payment methods when you make a purchase — including travel purchases. Whether traveling for family obligations or jetting off on a fabulous vacation, BNPL may offer the option to book travel without making a full upfront payment. But while BNPL can offer flexibility, it isn’t without risk.
Read on to understand the benefits, drawbacks and factors you should consider before using BNPL to book travel.
What Is Buy Now, Pay Later?
BNPL is an alternative to credit cards and loans. It’s popular for travel expenses such as flights, hotels and vacation packages. BNPL can offer convenience and flexibility, particularly for costly trips that might be difficult to pay upfront, but you should exercise caution.
“Participating online and in-person retailers offer (BNPL) at checkout,” says Rod Griffin, senior director of public education and advocacy for credit bureau Experian. “You can think of BNPL similar to a layaway plan, where you pay a merchant for a purchase over time rather than immediately upfront. Unlike a layaway, though, with BNPL, you get your items right away.”
Using BNPL, you can make a purchase and spread your expense into installment payments. That allows you to buy products or services — such as travel — immediately without making a full payment. BNPL is often interest-free as long as you stay on top of installment payments.
[Read: Best Personal Loans.]
How Buy Now, Pay Later Services Work
BNPL services are typically available at checkout when you book travel. For example, you might see the option to use BNPL when you book a flight instead of entering a credit card number.
At checkout, the BNPL service will provide loan information, including the number of payments, how much you’ll pay and your interest rate, if there is one. Some BNPL services use a credit check, but BNPL often doesn’t require a hard credit check unless you opt for extended terms or make a particularly large purchase.
You’ll make the first payment if approved, and your travel will be booked. The remaining balance will be split into equal installments. If you’ve opted for auto-pay, the installment amounts will be automatically charged to your payment method when each payment comes due.
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Factors to Consider Before Opting for Buy Now, Pay Later
Before you opt for BNPL, plan how you’ll make your payments. While BNPL can make paying for travel easier, installment payments could pressure other financial obligations. Can your budget handle the installment payments along with other commitments?
“The first thing to ask yourself is can you pay back the loan on time and in full?” says personal finance and travel expert Barry Choi. “Next, you should be aware that BNPL may encourage you to spend more because the entire balance isn’t due right away.”
Some BNPL services offer interest-free installment plans, but you may have to pay interest or fees if you miss a payment.
“BNPL plans have widely varying payment structures, so it’s important to read the terms carefully,” says Griffin. “Treat them like you would any loan agreement and look for information on payment terms, potential interest and late fees, and whether those payments or fees will be reported to the national credit reporting companies like Experian.”
Interest-Free Buy Now, Pay Later Installment Plans
An interest-free BNPL plan allows you to split your purchase into equal installments with no interest charges. BNPL installment plans may have no credit check. That can give you an alternative if you’re worried about getting approved for a credit card or loan to finance a travel purchase.
But there’s a catch: The repayment terms are often very short — for example, a down payment and three biweekly payments. Also, you might pay fees if it takes longer to repay the loan or if you miss a payment.
For example, you might be offered four interest-free payments, but if you opt to pay over six, 12 or 24 months instead, you’ll pay interest. It’s key to read the terms and conditions before signing the dotted line. And if you miss a scheduled installment payment, you should expect a late payment fee. You might also have to pay interest.
[Read: Best Debt Consolidation Loans.]
Benefits and Drawbacks of Buy Now, Pay Later for Travel Expenses
Benefits
— Payment flexibility: You can spread out travel costs in installments so it’s easier on your budget.
— Interest-free options: You may have the option of getting an interest-free installment plan.
— Quick approvals: BNPL applications and approvals are generally fast, so you can get approved and book your trip.
“The main benefit of BNPL is that you can pay for your purchases over time without potentially paying interest,” says Choi. “This can help people who are facing a temporary cash flow crunch.”
Drawbacks
— Late fees and interest: If you miss a payment or extend the installment period, you might have to pay late fees or interest.
— Credit impact: Missing a payment or defaulting on BNPL could negatively impact your credit score if the account goes to collections. But BNPL generally doesn’t help you build credit as traditional credit cards or loans can.
— Overspending risk: Breaking payments into smaller installments might make you feel that you can afford to spend more than you can handle.
“Generally, consumers are better off avoiding BNPL services since it may encourage them to spend more or buy things they don’t need,” says Choi. “That said, BNPL can be helpful in some situations. For example, you need to purchase something immediately for an emergency and don’t have a credit card.”
Alternatives to Buy Now, Pay Later
— Savings: Setting aside money in a travel fund enables you to pay for your trip without using credit.
— Rewards credit cards: You could pay for travel with points and miles earned with a rewards credit card.
— Personal loans: If you have good credit, a personal loan might offer better terms than BNPL.
— Delaying purchases: If you can’t afford travel without debt, hold off until it’s in your budget.
“To responsibly use BNPL services, you should be prepared to make all your payments on time to avoid fees, keep enough funds in your bank to avoid overdraft payments and assess the cost of the purchase and your overall budget to avoid overextending,” says Griffin. “It can be very easy to take on multiple BNPL accounts. You can quickly find yourself with more debt than you realized you were taking on and difficulty repaying the debts you owe.”
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Should You Use Buy Now, Pay Later for Travel? originally appeared on usnews.com
