After months of social distancing, you probably can’t wait to travel. As more people are vaccinated, travel is sure to increase – and prices for flights and hotels are rising. should increase.
While some consumers have savings to spend, those who want to travel more than savings may find a new payment option. Companies like Uplift and Affirm offer a type of travel loan, often referred to as a “fly now, pay later” plan that splits your travel expenses into multiple payments, sometimes without interest.
Companies market their payment plans as affordable ways to make your travel dreams come true. But is this type of travel loan a good idea?
How does flying now, paying later work?
These loans divide your purchase into a series of smaller payments, with the first payment due at checkout. Point-of-sale 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 fees over a fixed term at a fixed annual percentage rate, which includes interest and any charges.
For example, Uplift offers finance through resorts, cruises, vacation packages, and airlines, including United Airlines. If you book a flight on United’s website, once you’re ready to pay, you’ll see the option to pay monthly with Uplift.
With the Uplift option, you complete a short request. If approved, you will see the APR and the repayment term you are entitled to. This process includes a flexible credit check, which does not hurt your credit score.
Your credit profile and purchase details are the main factors that determine the rate, but rates also vary by lender and seller. Typical rates for travel loans are 0% to 36% and terms range from a few months to a few years.
If you agree to the terms of the loan, you will undergo a rigorous credit check, which may temporarily lower your score. From start to finish, the application process will only take a few minutes. The first payment is cashed at the cash desk, subsequent payments being due in monthly installments. Interest is usually fixed with this type of financing, which means your payments will be equal over the life of the loan.
Should you take a plane now, pay a loan later?
Financial experts generally recommend paying for non-essential expenses, like vacations, with savings rather than taking out a loan that adds to the cost – and lets you pay for the trip long after you get home.
But a travel loan can make sense in certain circumstances.
Consider a travel loan if:
You are eligible for a loan at an annual rate of 0%: You can receive a 0% APR offer, which means that if you make all the payments on time, you can basically borrow money for free. Borrowers with the highest credit scores usually get the lowest rates.
You must pay for an unforeseen or emergency trip: Not all travel is discretionary. If you have to attend a funeral, say, a robbery now, paying off a loan later could be a good way to cover that unexpected expense.
You can make payments on time: Before accepting the loan, plan to repay it by taking money out of your budget or applying additional income to the balance. Be aware of late fees if you miss a payment.
Don’t consider a travel loan if:
The APR on the loan is high: Consumer advocates say a 36% APR is the highest rate a loan can have and is still affordable, but sometimes even a lower rate is not worth the cost. For example, a $ 3,000 loan with 15% APR paid over 12 months would cost $ 250 in interest.
This encourages you to spend more than you can afford: A loan stolen now, pay later can make it look like you’re spending less than you really are, as you don’t have to pay the full amount up front.
It takes money on your other goals: If the additional payments for this trip eat away at your emergency fund or other savings goals, it may be worth postponing the trip and saving instead.
Other ways to pay for your vacation
The best way to pay for a vacation is with your savings. You can even create a separate vacation fund dedicated to your dream vacation. Having a specific goal is often a great motivation to save money each month.
If you travel often or want to start, consider requesting a travel credit card. These cards earn points or miles that you can redeem for travel expenses, and some have a signup bonus to maximize your return.
However, if you are not a frequent traveler, it is probably best to request a credit card with cash back. These cards usually have no annual fee and you can use the money however you want, including on your next vacation.
If pulling out savings or applying for a credit card aren’t options, you can consider the rate you might get on a personal loan, which can be used for any purpose, including vacations. Online lenders allow you prequalified to view your potential rate and term without harming your credit score, so you can compare multiple options.