The pros and cons of using Buy Now, Pay Later for travel expenses

Buy now pay later services are becoming more and more popular to buy products online. Often targeting young shoppers via social media, these services promote the ability to purchase products such as clothing or makeup through a small deposit followed by installments to cover the difference.

But it’s not just physical stuff you can click to buy later and pay for in full. Travel suppliers have jumped on the trend by partnering with these services, including Affirm AFRM,
and Uplift, so you can fund your vacation in small payments—sometimes even after the trip is complete.

Affirm started a partnership with Vacasa VCSA,
Vacation rentals in February 2021 and then American Airlines AAL,
in October 2021. With Afterpay, you can use its service when booking through online travel agencies Klook and Agoda, and you can even order tickets for the Broadway musical “Hamilton”. United Airlines UAL,
s flights can be paid later via Uplift.

Payment plans to cover vacation time are not new. Charging your vacation with credit cards was an option before these services were introduced, and many travel agents have long offered payment plans. Buy now, pay later Payment options are the shiny, technology-based version of payment programs like layaway or deferred interest.

Buy now, pay later” Services can be handy in certain circumstances, but there are downsides to taking on this type of debt.

Cash: 7 Unusual Places Worth Stopping On On A California Road Trip

The issues with using Buy Now, Pay Later to book travel

They make travel seem cheaper than it really is: Splitting a large payment into several smaller payments can make a purchase seem more affordable than it is and may be psychologically satisfying. However, the total of all payments may equal or sometimes even exceed the full stated cost due to interest.

For example, a two bedroom Vacasa vacation rental is $1,399 for a three night stay. But Affirm markets it as six monthly payments for $233.

You might scoff at the cost of accommodation for a three-day weekend, which 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.

It’s usually not a good way to build credit: Sezzle proudly proclaims that it has “zero impact on your credit score”. Afterpay advertises that it does not carry out any credit checks.

“We don’t believe in denying people access to Afterpay because they may have had old debts a long time ago. And we don’t believe that missing a payment with Afterpay should result in a bad credit history,” the company said in a statement.

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

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

In fact, Afterpay doesn’t affect your credit score, period, so even a spotless, on-time reputation isn’t going to help your values. Had you paid on time with a traditional credit card, that information would be reported to the three credit bureaus and likely to help your credit.

You could end up owing more interest than you thought: Some services charge fees. Affirm typically charges interest on longer loans, but does not charge for shorter loans. In the previous Vacasa example, you owe no 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 also owe Affirm nearly $120 in interest charges. That turns a nearly $1,400 cabin into a $1,520 cabin.

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

In addition to interest, there are other fees: Especially if you’re already struggling to pay your regular bills or track your expenses, some of these services can cause you to fall behind on payments and incur hefty late-payment fees.

zip code,
that works with Airbnb ABNB,
and encourages bookers to split each 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,
does not charge direct late fees, but will deactivate your account if you are two days late. You will pay a fee of up to $10 to reactivate your account. And if you preemptively delay your payment due date, Sezzle charges a $5 rescheduling fee.

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

Credit cards can also incur fees, and credit card issuers billed consumers a total of $12 billion in late fees in 2020, according to the CFPB. But the 2009 Credit Card Act, designed to protect cardholders, tightly regulates such fees by capping how much they can be charged. And in most cases, buy now, pay later loans are not subject to the same consumer protection regulations as credit cards.

When you buy now, pay later, the services make sense

You may pay less interest or fees than other forms of debt: Many of these services allow you to pay off purchases later without paying compound interest that you normally owe with other forms of debt that you take on. Unless you’re taking advantage of a 0% APR offer on a credit card, that includes most credit card debt.

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

It is a necessary output: Maybe you have a sick relative and need to get on a plane to take care of them. Maybe your house is in dire need of repairs and you need to stay in a hotel, but yours is homeowner or renters insurance does not cover upfront costs. If your travel expenses are necessary, then buy now, pay later services can serve people with little to no other options.

Also read: With soaring gas prices and inflation, should you take a vacation or staycation?

The final result

Buy now, pay later services can be a lifesaver when you are in an emergency situation and other options have been exhausted. They can also serve to bolster your savings account when booking a trip that you know you can afford but want to keep cash for as long as possible.

Continue reading: 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 with these services to be recommended for most travel purchases.

More from NerdWallet

Sally French writes for NerdWallet. Email: Twitter: @SAFmedia. The pros and cons of using Buy Now, Pay Later for travel expenses

Brian Lowry

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