Is Buy Now, Pay Later a Smart Way to Finance Travel?

After two years of social distancing, careful risk calculation and canceled plans, people are eager to travel again. In fact, travel is already back to pre-pandemic numbers. But with increasing demand, combined with the rising cost of oil, prices are expected to surge.

While some consumers have savings to burn, those with more wanderlust than savings may encounter an unfamiliar payment option. Companies like Uplift and Affirm offer a type of travel loan that splits your travel costs into multiple payments, sometimes with no interest.

The companies market these “buy now, pay later” payment plans as accessible ways to fulfill your travel dreams. But is taking this type of travel loan a good idea?

How does BNPL for travel work?

Travel loans offered by companies like Uplift and Affirm are known as buy now, pay later loans.

These loans divide your purchase into a series of smaller payments, with the first payment typically due at checkout. BNPL lenders partner with retailers — or in this case, airlines or other travel services — to offer this option directly on the provider's website. You pay the costs over a fixed term at a set annual percentage rate, which includes interest and any fees.

For example, Uplift offers financing through resorts, cruises, vacation packages and airlines, including United Airlines. If you book a flight on United’s website, once you’re ready to check out, you’ll see the option to pay monthly with Uplift.

With the Uplift option, you’ll fill out a short application. If approved, you’ll be shown what APR and repayment term you’re eligible for. This process includes a soft credit check, which doesn't hurt your credit score.

Your credit profile, purchase details and history with the lender are the main factors that determine the rate, but rates also vary by lender and vendor. Typical rates on travel loans are 0% to 36%, and terms range from a few months to two years.

If you agree to the loan terms, you may undergo a hard credit check, which can temporarily lower your score. From start to finish, the application process will take only a few minutes. The first payment may be collected at checkout, with subsequent payments due in two-week or monthly installments. Interest is typically fixed with this type of financing, meaning your payments will be equal amounts over the life of the loan.

Should you take a BNPL loan for travel?

Financial experts typically recommend paying for nonessential expenses, like vacations, with savings rather than taking a loan that adds to the cost — and leaves you paying off the trip long after you return home.

But a travel loan may make sense in some circumstances.

Consider a BNPL travel loan if:

• You qualify for a 0% APR loan: You may receive a 0% APR offer, which means if you make all the payments on time, you can essentially borrow the money for free. Borrowers with the highest credit scores typically get the lowest rates.

• You need to pay for an unexpected or emergency trip: Not all travel is discretionary. If you need to attend a funeral, for example, a BNPL loan could be a good way to cover this unexpected expense.

• You can make the payments on time: Before agreeing to the loan, have a plan to pay it off by carving money out of your budget or applying extra income to the balance. Be aware of late fees if you miss a payment.

Don't consider a BNPL travel loan if:

• The APR on the loan is high: Consumer advocates say that a 36% APR is the highest rate a loan can have and still be affordable, but even a lower rate is sometimes not worth the cost. For example, a $3,000 loan with a 15% APR paid over 12 months would cost $250 in interest.

• You’re struggling to pay off existing debt: If you carry a balance on credit cards or other loans, be careful about agreeing to more monthly payments. Too much debt can lead to a cycle of missed payments, fees and collection calls.

• It tempts you to spend more than you can afford: A BNPL loan can make it seem like you’re spending less than you really are, since you don’t have to pay the full amount upfront.

• It takes money from your other goals: If the extra payments for this trip would eat into your emergency fund or other savings goals, it may be worth postponing the trip and saving up instead.

» MORE: BNPL isn’t bad, but be careful

Other ways to pay for your vacation

The best way to pay for a vacation is with your savings. You can even set up a separate vacation fund dedicated to your dream trip. Having a specific goal is often a great motivator for setting aside money each month.

If you travel often or want to start, consider applying for a travel credit card. These cards earn points or miles that you can redeem for travel expenses, and some have a sign-up bonus to maximize your return.

However, if you’re not a frequent traveler, it’s probably better to apply for a cash-back credit card. These cards usually don’t have annual fees, and you can use the money however you want, including on your next vacation.

If pulling from savings or applying for a credit card aren’t options, you can look into what rate you could get on a personal loan, which can be used for any purpose, including a vacation. Online lenders let you pre-qualify to view your potential rate and term without hurting your credit score, so you can compare multiple options.

» MORE: The best vacation loans