The Pros and Cons of Buy Now, Pay Later for Travel Expenses

Buy now, pay later services are an increasingly popular way to purchase products online. These services often target younger shoppers via social media and promote the ability to purchase products like clothing or makeup via a small down payment followed by installments to cover the difference.

But it’s not just physical things you can click to buy and pay in full later. Travel providers have jumped on the trend by partnering with these services, which include Affirm AFRM,
+17.06%
and Uplift, to allow you to finance your vacation in small installments, sometimes even after the trip is over.

Affirm began partnering with Vacasa VCSA,
+1.08%
vacation rentals in February 2021 then American Airlines AAL,
+1.51%
in October 2021. Afterpay lets you use its service when you book through online travel agencies Klook and Agoda, and you can even order tickets for the Broadway musical “Hamilton.” United Airlines UAL,
+0.08%
Flights can be paid later via Uplift.

Payment plans to cover vacations are nothing new. Charging your vacation to credit cards was an option before these services began, and many travel companies have long offered payment plans. Buy now, pay later Payment options are the shiny, tech-savvy version of payment programs like layaway or deferred interest.

Buy now, pay laterThe services can be useful in some circumstances, but there are downsides to taking on this type of debt.

Check: 7 Quirky Places Worth Stopping On A California Road Trip

The issues of using buy now, pay later to book travel

They make the trip cheaper than it really is: Breaking down a large payment into several smaller payments can make a purchase more affordable than it is and perhaps psychologically satisfying. But the addition of all the payments can lead to the same result, or sometimes even more due to interest, than the total cost indicated.

For example, a two-bedroom Vacasa vacation rental for a three-night stay costs $1,399. But Affirm markets it in six monthly installments of $233.

You might scoff at accommodation costs for a three-day weekend that can be more than a month’s rent. But don’t be fooled when you see the $233 offer – you’re still paying the $1,399, just not all at once.

This is generally not a good way to accumulate credit: Sezzle proudly proclaims that it has “no impact on your credit”. Afterpay advertises that it does not perform credit checks.

“We don’t believe in preventing people from accessing Afterpay because they may have an old debt from a long time ago. And we don’t believe that missing a payment with Afterpay should lead to bad credit history,” according to a company statement.

While this notion has its merits, it does mean that people who might already have a history of debt have access to loans they might not be able to repay, which in turn digs them into deeper debt. .

Read also : Apple is the latest company to offer a buy-it-now, pay-later option. Here are 4 reasons why you should think twice before signing up.

In fact, Afterpay doesn’t affect your credit ratings, period, so even an immaculate, on-time reputation won’t help your ratings. If you had paid on time with a traditional credit card, this information would have been reported to all three credit bureaus and likely helped. your credit.

You might end up owing more than you thought in interest: Some services charge a fee. Affirm generally charges interest on longer loans, but does not charge fees on shorter loans. In the previous Vacasa example, you will not owe interest if the loan is repaid within six months. But if you choose to pay in 12 monthly installments of $116.67 over the course of a year, you’ll also owe Affirm nearly $120 in interest charges. This turns what could have been an almost $1,400 cabin into a $1,520 cabin.

Most other types of loans also charge interest. In fact, the average interest rate for a co-branded credit card in 2020 was 25.7%, according to data from a 2021 Consumer Credit Card Market Report from the Consumer Financial Protection Bureau.

There are other charges besides interest: Especially if you’re already struggling to pay your regular bills or keep track of your expenses, some of these services can make late payments easier and lead to steep late fees.

Zip Zip,
-2.75%,
which partners with Airbnb ABNB,
+4.97%
and encourages customers to split any purchase into four installments over six weeks, charges a convenience fee of $1 per installment (so you owe Zip $4 on top of the money you owe Airbnb). If you miss a payment, Zip charges late fees ranging from $5 to $10.

Sezzle SEZNL,
-5.56%
does not charge outright late fees but will deactivate your account if you are two days late. To reactivate your account, you will have to pay a fee of up to $10. And, if you preemptively delay your payment due date, Sezzle charges a $5 rescheduling fee.

Like many other services, Sezzle makes these fees difficult to know in advance. Case in point: Sezzle’s fees aren’t clearly stated on its site, but rather buried in the fine print of its 12,000-word user agreement.

Credit cards can also incur fees, and credit card issuers charged consumers $12 billion in late fees in 2020, according to the CFPB. But the Credit Cards Act 2009, intended to protect cardholders, heavily regulates these charges by limiting the amount of these charges. And in most cases, buy now, pay later loans aren’t subject to the same consumer protections that apply to credit cards.

When you buy now, pay later, services make sense

You could pay less interest or fees compared to other forms of debt: Many of these services let you pay off purchases later without paying compound interest, which you’ll typically owe with other forms of debt you incur. Unless you are taking advantage of a 0% APR offer on a credit card, this also includes most credit card debt.

You have bad credit or invisible credit, and it’s a necessary expense: Maybe you have bad credit. Maybe you’re good with money, but your credit is invisible, which means your credit history isn’t long enough to generate a credit report. (This is common among young people and recent immigrants.) Although most of these services won’t help you build your credit, they can help you if you need to make a purchase that you can’t pay for in full now.

It is a necessary expense: Maybe you have a sick relative and you need to hop on a plane to take care of them. Maybe your house needs emergency repairs and you will have to stay in a hotel, but your the owners or renters insurance will not cover the initial cost. If your travel expenses are necessary, then buy now, pay later services can serve people who have few or no other options.

Read also : With soaring gas prices and inflation, should you take a vacation or a “holiday”?

The bottom line

Buy now, pay later services can be a lifesaver when you’re in an emergency and have exhausted other options. They can also be used to amortize your savings account if you book a trip that you know you can afford, but want to keep the cash on hand for as long as possible.

Read next: Can you afford a road trip this summer? Here’s how to do it and save money.

But in general, there are far too many pitfalls in these services to be worth recommending for most travel purchases.

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Sally French writes for NerdWallet. Email: [email protected] Twitter: @SAFmedia.

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