'Buy Now, Pay Later' Pros and Cons for Travel

After almost two years 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 financing. You get the booking confirmation right away and spread out the cost over a series of equal payments.

But, as with all financing options, it's important to read the fine print. Compared with the buy now, pay later 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 they often charge significantly higher interest than what you'd pay with a credit card.

How 'Buy Now, Pay Later' Works

Buy now, pay later options are now available from dozens of travel providers:

• Airlines and their financing partners including Allegiant, American, Alaska, Delta, Emirates, Frontier, Hawaiian, Jet Blue, Spirit, Lufthansa, Southwest and United.
• Travel agencies including American Express Vacations, CruisesOnly, Expedia, Hotels.com, Hotwire, Kayak, Pleasant Holidays, Priceline, Travelocity, SmartCruiser.com, and Trip.com.
• Cruise ship companies including Carnival, Norwegian, Princess, Royal Caribbean, and Virgin Voyages.
• Vacation rental companies including Airbnb and Vrbo.
• Hotels including Universal Orlando, Atlantis in the Bahamas, and the OYO hotel chain.

The terms of these payment plans differ depending on where you buy and your credit score. For example, Consumers' Checkbook priced a flight on United Airlines for $2,506. At checkout, we were given the option to pay using Uplift, United's buy now, pay later partner: Book for no money down, and pay $246 a month for 11 months at 15% 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%. 

"There can definitely be steep interest charges for travel," said Ted Rossman, senior industry analyst with CreditCards.com. "Occasionally, a company like Uplift or Affirm will offer 0% 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 0%, 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 buy now, pay later financing because it tends to be easier to get approved. Unlike credit card companies, buy now, pay later 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 buy now, pay later offers are what they seem. Shop for a flight on American Airlines and at checkout you'll get a "fly now, pay later" option with no interest for six months. But there's a catch: To get the six-month free financing, you must apply and get approved for a credit card and charge the purchase to that card.

Beware the Spending Trap

One reason buy now, pay later might be so successful is that it offers an alternative to credit cards, which can be appealing if you're already carrying a lot of credit card debt.

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 consumers who sign up for these plans might not really know how they work. A survey by The Ascent, a service of investment site Motley Fool, found that only 43% of the 1,800 adults who said they had used a buy now, pay later service completely understood the terms and conditions.

Consumers are typically more protective of their savings than they are their future earnings. Spending money we'll earn down the road seems less painful than spending what's sitting in our bank accounts. Buy now, pay later 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.

Cancelations and Refunds

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 cancellation policies — before signing up.

Using a buy now, pay later service could also make it more challenging to get help if you want to cancel a purchase or are not satisfied with what you received. Buy now, pay later services do not provide the same legal protections — especially against fraud — as you get when you pay with a credit card. Federal law and credit card company policies allow you to dispute a transaction. These "chargeback" requests are overwhelmingly approved. Buy now, pay later companies may not be as motivated to make you happy.

When Does Using a Buy Now, Pay Later Service Make Sense?

Buy now, pay later financing may make sense if you're offered 0% 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.

Things To Consider

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 buy now, pay later interest rates for travel are often higher than with many credit cards.

What happens if I miss a payment?

While some buy now, pay later services don't have late payment fees, others do. Will a late payment be reported to the credit bureaus? If so, that will damage your credit scores.

How does this compare with 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."

About Consumers' Checkbook

Consumers' Checkbook 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.

Puget Sound Consumers' Checkbook and Checkbook.org are a nonprofit organization with a mission to educate and help consumers. Checkbook also evaluates local service providers — home improvement contractors, doctors, dentists, veterinarians, stores and more. It is supported by consumers and takes no money from the companies it evaluates. BECU members can try Consumers' Checkbook for 30 days for free and can get 50% off their annual subscription.

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