Travel now, pay later: are apps worth it?

Traveling regularly can reduce your stress, improve your physical health, and improve your understanding of the world around you. But travel can also be expensive.

It’s no wonder that the trend of buy it now and checkout apps has caught on in the tourism industry. But is traveling now, paying later worth it? In most cases, the costs can outweigh the benefits.

How Travel Apps Work Buy Now, Pay Later

There are many ways to finance vacations. One of the most obvious options is to use a credit card. Just use your card to pay when you book, then pay off the balance in full or make smaller payments over several months.

Alternatively, some people choose to take out a vacation loan – another name for a personal loan that they can use to pay for their vacation. But personal loans require you to submit an application, provide documents in some cases, and wait at least a day or two – but often longer – to get the funds you need.

BNPL travel services work the same way as a vacation loan, but the application, approval, and funding all happen at the point of sale, i.e. upon departure.

Instead of paying the full amount owed when you complete your purchase, you’ll pay the balance each month. The quick application and approval process can be more convenient than a personal loan, and because the payments are fixed, it may be more appealing to some than a credit card.

“If you can benefit from a competitive rate, the BNPL service can be a good alternative to credit cards, as the fixed monthly payments help you keep your budget on track and avoid the temptation to pay the minimum on your monthly credit card statement, ”says Andrew Latham, certified personal finance advisor and editor at SuperMoney.

BNPL’s services are generally provided by third parties such as Affirm and Uplift, who work with travel brands.

If you book travel with a provider that offers this payment option, you will usually provide information about yourself and the loan provider will perform a credit check. If you are approved, you will receive an offer with an interest rate and repayment terms. If you accept the offer, the lender will pay the travel supplier the full amount owed for the reservation, and then you will make the payments to the lender as agreed.

[READ: 10 Services That Allow You to Buy Now, Pay Later.]

Benefits of Travel Now, Pay Later applications

The main reason to consider using a BNPL travel service is convenience. If you can’t afford to pay the full amount now, using any of these services will prevent you from applying for a personal loan separately or using your credit card and losing that available credit for your daily expenses. .

Plus, unlike most retail-focused BNPL apps, you can have six, 12, or even 18 months to pay off your balance instead of a few weeks.

Disadvantages of Travel Now, Pay Later apps

While these services can be convenient, many of them charge interest of up to 36%. This is in stark contrast to most retail-focused BNPL apps, which charge no interest.

“(They are) so easy and convenient that they can trick you into spending more than you can afford, which can lead to a nasty cycle of debt, missed payments, damaged credit and even bankruptcy,” explains Latham.

Even compared to credit cards and personal loans, the interest rate for a travel now, pay later app can be high. According to the Federal Reserve, the average interest rates on credit cards that assess interest and two-year personal loans are 16.3% and 9.58%, respectively.

That doesn’t mean you can’t get lower fares with a Travel Now, Pay Later program. But it’s a good idea to compare the costs with other options before going ahead with one.

The other potential problem is that not all services offer the option of traveling now, paying later without a credit check. While a single credit application usually doesn’t affect your credit score much – FICO says it will drop your score less than five points – multiple credit checks over a short period of time can have an aggravating negative effect.

So if you use multiple services to book different parts of your trip, it could damage your credit score.

These services give you more time to pay off what you owe compared to similar retail apps, meaning you’ll likely still be making payments on your last trip when you want to get ready to book your next one. If you’re not careful, you could end up paying for multiple trips at the same time.

“You’ll enjoy your trip more if you’re not bothered by the huge sums you’ll pay afterward,” says Anton Radchenko, founder of AirAdvisor, a service that helps consumers get compensation for delayed, overbooked and canceled flights. “You’ll be more comfortable spending the money you have on hand because you can control it. ”

Finally, if you need to cancel your trip, some travel providers like airlines may give you a voucher for future use instead of a cash refund. This means that you could end up paying for a trip you didn’t have the chance to take.

[See: Best Apps for Your Credit Score.]

Alternatives to travel services now, pay later

If you want to book a trip but don’t have enough money to pay for it in full, BNPL travel apps can be tempting. But there are other options available that could potentially save you money.

– Rewards by credit card: Many travel rewards credit cards offer welcome bonuses worth hundreds of dollars, which you can use to book flights, hotels, rental cars, and more. With some cards like the Capital One Venture Rewards credit card, you can even get the card, book your trip, and then use the miles earned with your welcome offer to get credit on your statement for up to three months later.

– 0% APR credit cards: Another option is to apply for a new credit card that offers a 0% annual percentage rate promotion. Depending on the card you choose, you could get up to 20 months to pay off a balance without paying interest. In this scenario, you will still pay off your debts over time, but you could end up saving hundreds of dollars in interest with the 0% APR promotion.

– Economical travel services: There are many services and websites that help travelers find deals on flights, hotels, rental cars and more. Look for apps and services like Scott’s Cheap Flights, Hopper, HotelTonight, AutoSlash, and others that can help make your trip more affordable and avoid borrowing money.

– Wait and save: Using a BNPL service can make sense if you have no choice but to travel fast and can’t afford it, says Radchenko. But if you can wait, it’s usually not worth it. While it might not seem as fun to postpone your travel plans, it may be the best approach for your budget. Research your trip to find out how much it will cost you and when you will need the money to book the flight, hotel and other aspects of your trip. Then start putting money aside each month so you have money when you need it.

[Read: Best Travel Rewards Credit Cards.]

Tips for using Travel Now, Pay Later apps

If you decide to use a BNPL service to book your trip, at least be sure to shop around and compare all of your options before continuing.

If you are ready to book, read the fine print of what is expected of you during the application process, how it will affect your credit, and what it will cost you.

Once you’ve accepted the loan, look for ways to pay it off sooner. Not only will this save you on interest charges, it will also free up money faster, which you can use to start saving for your next vacation.

More American News

APR vs. interest rate: what’s the difference?

Everything you need to know about secured loans

Can I get a personal loan with bad credit?

Travel now, pay later: are apps worth it? originally appeared on usnews.com