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With summer in full swing, and many countries easing travel restrictions, you might be eager to plan a post-pandemic trip. Even if you managed to save some money ahead of time, travel expenses can quickly add up, and you might be tempted to choose the 'buy now, pay later' option that's offered at checkout on many travel websites, including Carnival or Expedia.
These point-of-sale loans are seductive to consumers who don't want to pay for their post-pandemic vacations with one lump-sum payment, allowing people to make payments over a fixed period of time, sometimes without high interest rates.
But is using the 'buy now, pay later' option to pay for your flights or hotel stays too good to be true?
Select explores some of the benefits and drawbacks of using 'buy now, pay later' for travel.
'Buy now, pay later' providers (also known as point-of-sale loans) offer consumers the option to sign up for a payment plan either when they're buying something on a retailer's website or directly through the loan provider's website ahead of purchase
Point-of-sale loans give consumers the ability to make installment payments over a fixed period of time until they completely pay off their purchase. This means that you'll make payments toward your purchases bi-monthly or monthly depending on the plan and/ or provider.
These payments can typically be automated by providing your debit card or bank account information. While many providers boast 0% interest rates, some point-of-sale loans can have interest rates upwards of 30%, higher than the APRs on many credit cards.
Some of the most popular providers are Afterpay, Affirm, Klarna and Uplift. Klarna offers point-of-sale loans, some with 0% APR, that allow you to make four payments every two weeks and require a deposit at checkout, while Afterpay allows you to pay over six weeks. Afterpay, Uplift, Klarna and Affirm also offer consumers longer payment periods of up to one, two or even three years.
When you purchase a flight or an item, you're given different financing options at checkout, such as the opportunity to pay with a credit card, gift card or point-of-sale loan. You'll be redirected to the POS provider website where you can enter your personal information.
Some companies won't perform a credit check while others will perform either a soft or hard credit inquiry. Soft credit checks don't negatively impact your credit score, but hard inquiries will temporarily decrease your score. Based on the information you enter, you'll either be approved or denied for the loan.
Afterpay doesn't do any credit checks while Klarna does soft and hard credit checks, depending on the loan.
The impact a point-of-sale one has on your credit score depends on whether the provider reports your payment history to the credit bureaus. For example, Affirm only reports your credit history to Experian for some loans and not others. For the loans that Affirm does report to Experian, your payment history, the length of your credit history with Affirm, the amount of your loan and your late payments can all show up on your credit report.
Make sure to read the terms and conditions of your POS loan to see if your negative payment history is reported to the credit bureaus.
Travel expenses might seem like the perfect opportunity to use a point-of-sale loan because it's oftentimes a big purchase that you might not have the immediate cash on hand to cover.
Klarna, Afterpay, Affirm and Uplift all offer 'buy now, pay later' option for certain travel partners. Affirm has partnerships with Delta Vacations, Priceline, StubHub and Alternative Airlines, a flight booking website. Uplift is exclusively focused on providing point-of-sale loans for travel, with around 200 travel partners, including United Airlines, Kayak, Southwest Airlines and Royal Caribbean.
Uplift will help you cover transactions costing anywhere from $100 to $25,000. Interest rates range from 7% to 30%, but there are a few travel partners such as Carnival Cruise Line and Atlantis that have a 0% APR, according to Tom Botts, chief commercial officer at Uplift. The average APR for an Uplift point-of-sale loan is 15%, which is similar to the average APR for credit cards.
"We use a variety of factors to determine eligibility," Botts says. "Interest rates are based on a number of factors including credit history, transaction amount and time to travel."
Uplift also only performs a soft credit check which won't negatively impact your credit score.
If you're able to secure a loan with 0% APR and make your payments on time, a point-of-sale loan could be a good choice for funding a trip. But if those monthly payments won't easily fit within your budget, be wary of a POS loan and read the fine print beforehand to determine how much you'll end up paying in interest.
For example, if you use Affirm to finance your purchases on Alternative Airlines, you can only get a 0% APR on your point-of-sale loan if you buy a flight that costs less than $500. If your ticket costs more than $500, you could incur an interest rate of up to 30%, depending on your creditworthiness.
If you spend $1,000 on a flight and choose a 12-month payment plan with Affirm, you'll have to cough up nearly $100 in interest if you have a 20% APR on your loan. One perk of using Affirm over a credit card is that you'll have a longer payment period (of 3, 6, 12 or 18 months) which helps to spread the expenses over time into more manageable payments. And with an installment loan from Affirm or Uplift, the interest doesn't compound month over month, so your payment stays the same over the loan's term.
But a big drawback of using point-of-sale loans for travel is having to deal with unexpected problems, like trip cancellations or delays, says Priya Malani, the CEO and founder of Stash Wealth.
"If a trip is canceled or delayed with unexpected fees, your loan is still due. You're on the hook for the agreed upon total. Even though you may have checked out in one fluid process, you're still working with two separate entities — the travel provider and the POS loan provider," Malani says.
When it comes to funding your resort stay in Cancun or your flight to the Maldives, there are other options for financing your trip.
Travel rewards credit cards offer higher rewards rates for money spent on travel and the points you earn can go toward booking flights or hotels. While travel credit cards typically come with an annual fee, some offer a 0% introductory period, so you won't have to worry about high interest rates kicking in for 12 months or longer. If you go the 0% APR route, make sure you set up a repayment plan and pay the minimum each month so you don't end up paying late fees or big interest charges.
The Chase Sapphire Preferred® Card is currently offering its largest bonus ever: New cardholders can earn 100,000 points after they spend $4,000 on purchases in the first three months from account opening. Points can be redeemed for $1,250 worth of travel if you book through the through the Chase Ultimate Rewards® portal.
5X points on Lyft rides through March 2022, 2X points on travel and dining worldwide, 1X points on all other purchases
Earn 100,000 bonus points after spending $4,000 on purchases in the first 3 months from account opening
15.99% to 22.99% variable on purchases and balance transfers
Balance transfer fee
Either $5 or 5% of the amount of each transfer, whichever is greater
Foreign transaction fee
The Capital One Venture Rewards Credit Card is also a solid choice but comes with a smaller welcome bonus and higher rewards rate than the Preferred, giving 2X miles per dollar on every purchase and a 60,000-point welcome bonus if you spend $3,000 within three months of account opening.
5X miles on hotel and rental cars booked through Capital One Travel℠, 2X miles per dollar on every other purchase
Earn 60,000 bonus miles once you spend $3,000 on purchases within the first 3 months from account opening
N/A for purchases and balance transfers
17.24% to 24.49% variable on purchases and balance transfers
Balance transfer fee
3% for promotional APR offers; none for balances transferred at regular APR
Foreign transaction fee
Travel cards also often come with additional perks such as car rental insurance, trip cancellation insurance and purchase protection. You won't get any of these perks when you use a POS loan for travel.
If you worry about putting a big expense on your credit card or you're only eligible for a POS loan with high APR, you should also consider creating a travel fund instead.
By saving your money in a high-yield savings account, you'll be earning more (thanks to compound interest) than you would be if you put your money in either a checking account or a traditional savings account. Creating a separate fund for travel can also give you a money goal to strive for and setting up automatic monthly transfers can help you avoid spending money on other short-term, more frivolous purchases.
Point-of-sale loans are attractive because of how easy they are to use — you simply provide some basic information about yourself to the loan provider before checking out and you can instantaneously get a loan that will allow you to spread the cost of your trip over a few months. If you're not diligent about reading the fine print, however, there can be a lot of caveats to using the 'buy now, pay later' option, including high interest rates and late fees.
Information about the Capital One Venture Rewards Credit Card has been collected independently by
Select and has not been reviewed or provided by the issuer of the card prior to publication.
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