Travel Now, Pay Later: Is It Worth It?

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Feb 12, 2023

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You might have come across advertisements saying to book flights or hotels now and pay later. This is a rising trend across the global travel industry and some of the top companies like United Airlines and American Airlines are offering the option to make a reservation now and pay it later. It is known as the travel now, pay later service and is similar to the buy now, pay later you might have heard of.

There was a massive rise in spending towards the travel and entertainment sector between 2020 and 2021 and it gave a push to the travel now, pay later segment. However, travel-related buy now pays later services have been in existence for a long time and have grown by millions over the past few years.

Buy now, pay later is a short-term credit alternative for online purchases offered by companies including Afterpay, Affirm, and Apple. You can make an instant purchase and pay it back later, in installments or monthly payments over a tenure. This form of credit is popular across the electronics, beauty, travel, and apparel segments. But is it worth it? Let’s look at travel now and pay later in more detail.

In this article

What are travel now, pay later loans?

Travel now, pay later, or buy now, pay later is known as point-of-sale loans. You can sign up for a payment plan on the loan provider's website before purchase or on the retailer’s website. This loan will allow you to make installments over a long period of time until the purchase is completely paid off.

Hence, you can make payments towards the purchases monthly or bi-monthly as per the plan of the loan provider. The payment is usually automated using your bank account or debit card, and most providers have 0% interest rates, but some loans come with very high-interest rates. They can sometimes go as high as 30%, higher than an APR on your credit card.

Related: Where to Get and Exchange Foreign Currency

Understanding point-of-sale loans

Whenever you buy a flight or book a hotel, you will be provided with varying finance options at checkout, like the opportunity to pay through a gift card, a credit card, or opt for a point-of-sale loan. If you opt for it, you will be taken to the POS provider's website, where you can enter your details. Many companies do not perform a credit check, while others opt for either a soft or hard credit inquiry. However, a soft credit check will not affect your credit, while a hard inquiry could decrease the score temporarily. You will be either approved or denied the loan based on your information. If the credit provider reports your payment history to the credit bureau, it will impact your credit score. Before you agree to a POS loan, read the fine print thoroughly.

The trouble with travel now, pay later

The term travel now, pay later can lead to confusion and challenges with strict requirements, resolving disputes, and using autopay. It encourages you to spend more than you can afford and take on more debt. This is why it does more harm than good. Here are a few of its challenges.

Late fees

Many services charge late fees ranging as high as $8, and about 10% of the total borrowers pay at least one fee.

Overspending

Any travel now, pay later service will get access to shoppers’ buying data, which can be used for marketing campaigns in the future. This could lead to more spending, which is a form of overextension that can put consumers at risk. Most users use the service for expenses that do not fit in their budget, have maxed out the credit card, or cannot get approval for a credit card.

Forced autopay

These loans often require autopay, which could become troublesome for those who need more funds in their connected payment accounts. It eventually leads to a late fee from the company and an overdraft fee from the bank. If you make payments from a debit card, there is a higher possibility of over drafting on accounts that need more funds. One in three users has to end up with over-drafting to make the payment, and it comes at a cost.

Trip cancellations

A major problem of using a loan for travel is handling unexpected problems like trip delays or trip cancellations. Even if your trip is canceled for some reason, your loan is still due, and you will be liable to pay the amount each month. You are now dealing with two separate entities. One is the lender, and the other is your travel provider.

Related: What is Credit Card Travel Insurance and How Does It Work?

Alternatives to point-of-sale loans

Travel rewards credit card

An ideal alternative to the loan is a travel rewards credit card. It comes with high reward rates on the amount you spend on travel, and the points you earn will go towards booking your hotels and flights. Most cards come with a 0% introductory offer, so you do not have to worry about the high interest rates for at least 12 months.

When you take the 0% APR option, you should set up a repayment plan and ensure you make the minimum monthly payment to avoid late fees or high-interest charges. You can also enjoy other perks with travel cards, like trip cancelation or renters insurance. Such perks do not come with the travel now, buy later option.

Saving for your travel

Buying now and paying later through credit cards is not a good idea either. It is only a sign that you are spending more than you can afford to repay. Another option is to set aside money like you would for any major expense. When you are worried about using a credit card, you can start creating a fund for your travel. Set aside money in a high-yield savings account, put it in a checking account, and make it your travel fund. It will also help you avoid spending on unnecessary expenses and teach you financial discipline.

Should you use the travel now, pay later option?

You might consider a point-of-sale loan an ideal choice for covering your travel expenses since it is a big purchase, and you might not have immediate cash on hand for it. Affirm, Klarna, Uplift, and Afterpay offer these services to travel agencies. Uplift is focused on providing these services with close to 200 travel companies which include Royal Caribbean and United Airlines. Affirm works with Priceline, Delta Vacations as well as StubHub. The companies use a range of factors to decide your eligibility, and the interest rate will depend on your credit history, time to travel, and the transaction amount.

If you can secure a loan with a 0% APR and remember to repay on time, this loan is a good choice for your next trip. However, the monthly installments will not easily fit your budget, so you must be wary of the loan and read the documents beforehand.

FAQS

Which airlines offer travel now, pay later services?

You can book through Alternative Airlines, Delta Airlines, British Airways, and United Airlines for travel now, pay later service.

Is layaway and buy now, pay later the same thing?

BNPL and layaway are similar and allow you to make installment payments on the item, each has a different process. BNPL allows you to travel now or buy now and pay later, but with layaway, you can only receive a product or service once you pay the amount in full.

What if I cannot pay off my installments?

When you fail to repay on time, you will have to pay a late fee, and eventually, the account could be sent to collections. This will show up on your credit report, and your credit score will drop.

The bottom line

Point-of-sale loans can be attractive since they are easy and convenient. You only need to provide basic information and get a loan at friendly loan terms. If you have the financial discipline and can make the payment on time, travel now, and pay later can be an ideal alternative to credit cards, which often come with high-interest rates on balance. It can also help with budgeting since it has a fixed payment amount and a clear payment date.

Traveling now and paying later can also be a good option for cash-strapped individuals needing an emergency trip. For many others, it can also free up cash flow. But if you are not diligent about going through the fine print, you could incur late fees and a huge interest burden.

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Vandita Jadeja is a financial writer and editor at Joywallet. She loves to read and write about money and brings a decade of experience from the financial industry.

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