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Buy Now Pay Later Vacation Loans: Are They Worth It?

Wealth of Geeks 6/13/2022 Alexandrea Sumuel

Summer break has finally arrived, and it's time to talk about vacations! For many, this will be their first real vacation since COVID began over two years ago. Unfortunately, we face a new obstacle this time-inflation. With the rising gas, hotel stays, and food prices, how exactly are Americans paying for their long-awaited trip?

Buy Now Pay Later Loans Are Increasing in Popularity

One option increasing in popularity is Buy Now Pay Later (BNPL) financing. These loans can be applied for online during checkout and approved within minutes, and most BNPL loans require little to no money down and are paid back in installments. Some lenders offer interest-free payments, don't include late fees, or will even bypass credit checks.

While BNPL loans may sound like a great way to pay for your flight or all-inclusive resort, you'll want to weigh the financial risks before applying.

BNPL Expands Into the Tourism Industry

Although BNPL financing is not a new concept, the tourism industry has recently taken a greater interest in offering these payment options to their customers. As a result, popular BNPL companies such as Uplift, Affirm, Afterpay, and Klarna are expanding their partnerships to include airlines, hotels, travel booking websites, cruise lines, travel agencies, and other travel-related businesses.

Uplift, for example, currently partners with Universal Studios, SeaWorld, United, Southwest, Allegiant, Frontier, Carnival, and MSC, amongst others. Affirm has partnerships with companies like Priceline.com, Expedia, and Vrbo.

Risks to Consider Before Using BNPL

As with any other type of loan, you should think through the financial risks. Because one can obtain BNPL loans so quickly, it's easy to overlook the finer details of the offer. Here are a few things to consider before applying for a BNPL loan.

Interest: Some BNPL loan providers like Afterpay and Klarna are interest and fee-free as long as payments are on-time, but some are not. Affirm offers rates between 0% – 30% APR depending on your credit, while Uplift ranges from 0% – 36% APR.

Refunds: Before using a BNPL loan to book your bachelorette party in Las Vegas, understand the refund policy. If your flight is canceled and you aren't eligible for a refund through the airline, you may still be responsible for your loan payments.

Late Fees: Lenders who offer interest-free loans sometimes have late fee penalties. So if you have a poor payment history, this loan option could get you into trouble. Harvard researchers recently found that "delinquent credit repayment rates are substantially higher for BNPL than for credit cards."

Multiple Loans: According to a recent survey, individuals who use BNPL loans once are more likely to use them again. Taking out more than one loan simultaneously, also known as stacking, can quickly become unmanageable when payments are due.

Millennials and Gen Z Most Likely to Use BNPL

According to a GlobalData report, Millennials and Gen Z and the two most likely generations to use BNPL loans as they were hit hardest by the pandemic. As a result, these price-conscious travelers are likely to favor airlines that offer BNPL options, the report goes on to say. Tack on inflation and this type of flexible, low-cost financing becomes even more attractive.

Interestingly, a recent study revealed that Millenial and Gen Z BNPL users have good to excellent credit and are highly educated, making them ideal candidates for these types of loans.

Insight From Financial Professionals

Financial Coach Kelley Long, Founder of Financial Bliss, says if you can afford to make payments and have a system in place, BNPL is a great way to take advantage of what she calls "the float." You hold your money in an interest-bearing savings account and pay off your travel before fees kick in. However, long says it only works to your advantage when you physically or mentally set aside funds.

Schuyler Lemler, an Accredited Financial Counselor® and the Founder of Apothecary Financial, told us that BNPL loans are convenient for essential purchases. Typically, non-essential purchases like vacations should be paid for with savings. "When we finance things like trips, there is a tendency to spend more than we intended," Lemler says. He also recommends using BNPL to float the cost of your trip, but only if you have the funds saved up.

Final Thoughts

So the question is, ‘Are BNPL loans a good idea for travel?' Unfortunately, the answer depends highly upon your financial situation. While it may be tempting to hit the ‘apply' button at checkout, do your research into the lender and your finances before committing.

And as always, if you can afford it, paying for a trip to Italy out right in cash will help you avoid interest payments, late fees, and derogatory marks on your credit.