The Pros and Cons of ‘Buy Now, Pay Later’ Financing for Travel
Last updated June 11, 2021
After more than a year of canceled plans and trips, many Americans are traveling again.
So, how do you pay for a highly anticipated getaway if your budget is limited and prices for plane tickets and hotel rooms are going up? The travel industry has a solution: Buy now, pay later (BNPL) financing. With it, you get the booking confirmation right away and spread out the cost over a series of equal payments.
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But, as with all financing options, it’s important to read the fine print. Compared to the BNPL programs offered by major retailers––which often don’t come with interest or fees––most travel providers offer loans with longer payback terms (typically three months to a year), and in most cases you will be charged interest that’s typically significantly higher than what you’d pay with a credit card.
How It Works
BNPL options are now available from dozens of travel providers:
- Airline tickets from domestic and foreign airlines or their financing partners, including Allegiant, American, Alaska, Delta, Emirates, Frontier, Hawaiian, Jet Blue, Spirit, Lufthansa, Southwest, and United.
- Travel packages offered by Delta Vacations, Southwest Vacations, and United Vacations.
- Cruises with Carnival, Norwegian, Princess, Royal Caribbean, and Virgin Voyages.
- Vacation rentals through Airbnb and Vrbo.
- Hotels, such as Universal Orlando, Atlantis in the Bahamas, and the OYO hotel chain.
Many online travel agencies also have BNPL options, including American Express Vacations, CruisesOnly, Expedia, Hotels.com, Hotwire, Kayak, Pleasant Holidays, Priceline, Travelocity, SmartCruiser.com, and Trip.com.
The terms of these payment plans differ depending on where you buy and your credit score. For example, we priced a flight on United Airlines costing $2,506. At checkout, we were given the option to paying using Uplift, United’s BNPL partner: Book for no money down, and pay $246 a month for 11 months at 15 percent APR. But there was this disclaimer: “Actual terms are based on your credit score and other factors and may vary.” If our loan was approved, the interest rate could be significantly higher, based on a credit check. Consumers with poor credit scores might pay interest as high as 36 percent.
“There can definitely be steep interest charges for travel,” warned Ted Rossman, senior industry analyst with CreditCards.com. “Occasionally, a company like Uplift or Affirm will offer zero percent interest for travel, but a lot of the time you are going to be charged an interest rate that’s comparable to a credit card—or even higher. So, you definitely need to do your homework, and figure out what you’re getting into.”
“If you do get quoted an interest rate other than zero percent, and you have a credit card, consider if it makes sense,” said Annie Millerbernd, personal loans expert at NerdWallet. “Just consider whether you’ll get a lower interest rate through this buy now, pay later loan, or if you can pay less with your credit card.”
Some people are drawn to BNPL financing because it tends to be easier to get approved. Unlike credit card companies, BNPL services often do not report positive payment history to the credit bureaus. So, paying this way may not help build credit. On the other hand, they may report late or missed payments to the credit bureaus, which will have negative consequences.
Not all “pay later” offers are what they seem. Shop for a flight on American Airlines and at checkout you’ll get offered a “fly now, pay later” option with a no-interest for six months. But there’s a catch: To get the free six-month free financing, you must apply for and get approved for a credit card, and charge the purchase to that card. This is this is a just a way the airline pushes customers to sign up for one of its affiliated credit cards.
With some airlines and travel providers, you’ll see a BNPL option at checkout, but with others you won’t see it unless you first install their partners’ mobile app or browser extension, or shop through the BNPL service’s website. For example, American Airlines partners with Quadpay (soon to be rebranded as “Zip”) to provide BNPL financing to its customers, but you won’t see that as a payment option unless you’ve signed up with Quadpay and then use its app or installed its browser extension.
Beware the Spending Trap
Checkbook often warns readers how sellers manipulate consumers to buy more and buy now—fake sales, hidden fees, misleading scarcity warnings—and now “pay later” offers.
BNPL is marketed as a smarter, more consumer-friendly way to pay. One reason BNPL is so successful is that most Americans have accumulated thousands of dollars in credit card debt. By offering a different way to pay, some people feel it’s OK to spend, since they’re not adding debt to their already-maxed-out credit cards.
But these point-of-sale loans can lure you into buying travel products you can’t afford.
“To some, this feels like a more responsible way to take on debt because there’s an end date in sight,” Rossman said. “You know exactly how many payments you have, and how much you owe each month, and it’s not going to change.”
What’s worrisome is that most consumers who sign up for these plans don’t really know how they work. A survey by The Ascent, a service of investment site Motley Fool, found that fewer than half (43 percent) of the 1,800 adults who said they had used a BNPL service completely understood the terms and conditions.
Consumers are typically more protective of their savings than they are their future earnings. For some reason, spending money we’ll earn down the road seems less painful than spending what’s sitting in our bank accounts. BNPL takes advantage of that psychology.
Before taking on more debt of any kind, consider the long-term consequences. The smart move is to save up enough to be able to afford the purchase.
That said, BNPL financing may make sense if you’re offered zero percent interest, and you can afford to make the purchase but simply want to spread out the payments. It could also be a good option to deal with an emergency that requires travel when you don’t have the money to pay for the trip.
“Just remember, you’re not paying less for that plane ticket or cruise using buy now, pay later; you’re paying for it in a different way,” noted NerdWallet’s Millerbernd.
Some big credit card companies now offer the option to pay off purchases of more than $100 in installments. Don’t assume these deals come without penalties: With “My Chase” from Chase Bank and “Plan It” from American Express, there’s no interest but there is a fixed monthly fee. Citibank’s “Citi Flex Pay” is just the opposite: interest, but no fees.
More Downsides
Life happens and plans change. What happens if you need to cancel? Using a third-party financing company adds another layer of complexity should you need to change your vacation dates due to sickness, weather, or a COVID outbreak at your destination. It could slow down your refund or create added hassles. Even if you get a full refund, you may be stuck paying some of the interest you agreed to pay on that loan. Find out when you read the terms and conditions––and find out about cancellations––before signing up.
Using a BNPL service could make it more challenging to get help if you want to cancel a purchase, or are not satisfied with what you received. BNPL services do not provide the same legal protections––especially against fraud––as you get when you pay with a credit card. Checkbook often recommends paying with a credit card (when possible) because if there’s a problem after the sale, federal law and credit card company policies allow you to dispute a transaction. In our experience, these “chargeback” requests are overwhelmingly approved. BNPL companies may not be as motivated to make you happy.
When Does Using a Buy Now, Pay Later Service Makes Sense?
Anytime you apply for a loan, you need to think about why you’ve decided to borrow.
“Consider how borrowing will impact your overall financial situation, and why your overall financial situation may be impacting your borrowing options,” cautioned Bruce McClary, senior vice president for communications at the National Foundation for Credit Counseling. “Is this a good time, and is there a good reason to go into debt for this purchase?”
As with all loans, you need to read the fine print to avoid costly surprises. You should also think about why you want the loan. Consider:
- Can I make the payments?
- If the money coming in varies from month to month, do you really want to add an extra bill into the mix?
- What’s the cost of the loan?
- How does that interest rate compare to other options, such as your credit card? We found that BNPL interest rates for travel are often higher than with many credit cards.
- What happens if I miss a payment?
- While some BNPL services don’t have late payment fees, others do. Will a late payment be reported to the credit bureaus? It could be and that will damage your credit scores.
- How does this compare to other options?
- Do you have a travel rewards credit card? If you can pay off the bill in full when it arrives, you may be better off going that route. Taking an expensive cruise? Some cruise lines will let you pay in monthly installments—interest free—after you make a deposit.
“There’s a lot of fine print with these offers, and the terms vary widely from company to company,” said CreditCards.com’s Rossman. “It can be confusing and actually a lot more complicated than it might seem on the surface.”
Contributing editor Herb Weisbaum (“The ConsumerMan”) is an Emmy award-winning broadcaster and one of America's top consumer experts. He is also the consumer reporter for KOMO radio in Seattle. You can also find him on Facebook, Twitter, and at ConsumerMan.com.