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Travel Now Pay Later: What Travelers Should Know Before Traveling On Credit

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After droves of Americans took to the skies this past summer, after more than two years of pandemic-related lockdowns and travel restrictions, some are still eager to squeeze in a final trip this upcoming holiday break – albeit higher prices may dampen this opportunity for many.

As travel costs stay elevated compared to last year, from surging gas, airfares, and hotels, more and more Americans may soon look to “Travel Now Pay Later” (TNPL) schemes as a way to finance their wanderlust.

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And many are doing so for good reason. Across the board prices for everything from lodging to dining out, and car rental has gone up.

A Travel Inflation Report revealed that airfare prices were up by 43% in September this year compared to the same period last year. High-profile car rentals have seen a slight decline in recent months, but are still 50% higher than what they were in 2019. Eating out was also found to be 8% more expensive in September 2022 versus September 2021.

According to a PwC U.S. report, more than 47% of surveyed respondents said they are planning to travel over the upcoming holiday break, even with prices surging at an alarming rate.

While the promising outlook paints a vivid picture of the tourism industry's strong rebound, Americans are planning shorter distances, engaging in fewer activities, and spending fewer days out of town, according to supplementary data provided by Bankrate.

Americans are now seeing inflation and soaring interest rates silently eat into their disposable income, leading many to look towards alternative ways to help fund their holiday travel plans.

With costs up, and inflation causing turbulent economic conditions, Americans are only falling deeper into debt. During the second quarter of the year, credit card balances jumped by 13%, the biggest year-over-year increase recorded in more than two decades.

With Americans trying to keep up with the out-of-control cost of living crisis, TNPL could grow interested in the coming months as some families try to work on one last trip before the new year. “While many people are eager to travel again due to pent-up demand, families and individuals should consider the financial implications TNPL schemes can have in the near term,” says David Stewart, CEO of Guide to Europe.

As travelers once again take to the skies, what are some of the pressing matters they should bear in mind when traveling on credit?

Exorbitant Interest Rates

Despite TNPL schemes allowing more people the freedom and financial flexibility to travel, it does come at a higher cost, something which many Americans may struggle to repay once they have returned from their trip.

TNPL schemes allocate digital credit that is usually distributed by a bank or non-banking finance company that is linked to a travel aggregator. Often, Buy Now Pay Later, a similar concept to TNPL advertises a 0% interest rate, though this can often be very misleading in some cases, especially if account holders miss payments or default on their loans.

Interest rates on these loans may differ, travelers can expect rates to be anywhere between 13% and 30%, with an average repayment tenure of 18 months.

“Travelers who are not smart about using these schemes can run up a hefty travel bill, without even knowing it,” tells Stewart. The margin for error is bigger now, especially with economic experts predicting a looming recession and interest rates skyrocketing.

Repayment Starts Immediately

Contrary to what the name suggests, repayment on these loans and credits usually starts a month after an individual has finalized the booking. Repayment is usually based on the terms of the loan, and often travelers will be required to start repaying these loans immediately.

There are those instances where a traveler can only start repaying once they have returned from their trip, but this means that interest build-up would leave one with a higher-than-expected bill.

Not all aggregators are as lenient, and many won’t often allow travelers to scrap repayments even if the trip does end up getting canceled. For this, travelers will be required to pay an extra cancellation fee, which only adds more weight to their financial stress.

An Ongoing Cycle Of Borrowing

Travelers that end up partaking in TNPL schemes could find themselves squarely caught right in the middle of a looped cycle of borrowing and repaying the loans.

Although individuals can make monthly installments, it does however lead to a decreased financial position in the near term.

Though some will be able to complete the repayment cycle in due time, there is the chance that many will tap into their savings as an alternative to cover the outstanding loan amount.

“It’s easy to get caught in something hard to get yourself out of, and it’s best that travelers counsel and advise with their banks and the travel aggregator before making a decision that will lead them to a decreased financial outlay,” according to Stewart.

Travelshift, the holding company of Guide to Europe, has been introducing new digital tools that allow travelers to book and pay for services or packages at the same time. As one of the only travel tech companies in the world to introduce these tools, users can now save time and money, by having all their documentation grouped in one app.

Penalty Fees For Late Or Missed Payments

There is a slight chance that travelers could be late on payments, or miss them altogether. And while this is common, like with credit cards, companies that offer zero interest rates may have a complex installment program to make up for late payers.

Though the penalty fees can differ, with some offering a stock-standard fee, while others have an additional percentage on top of the balance amount, individuals could find themselves tangled in a complex install program, with no forward-looking guidance.

Stewart suggests that while TNPL can be a smart way to subsidize travel expenses, it should be considered with caution, especially if you are someone who has missed the due date on other payments.

Among those who have missed payments on the BNPL loans, around 48% of consumers aged 18 to 24 were most likely to miss a payment, resulting in a penalty fee. Even more worrisome is the 17% of consumers who recently mentioned that they are “very likely” to miss a payment in the next 12 months due to financial problems.

Is Travel Now Pay Later Viable?

Compared to traditional credit cards, TNPL can be a more affordable option for travelers, but it does come with an added risk, especially if they need to cancel their trip last minute even if they booked their trip far in advance.

While it does give consumers more flexibility, some may see it as a way to pay for purchases such as holidays and excursions that are not within their financial means or budget.

Using TNPL schemes as a replacement for traditional credit cards could lead to greater financial stress, and can leave travelers in a continuing borrowing and repayment cycle.

Travelers can also consider a travel card that can give them similar perks of TNPL schemes, and usually offers a different range of rewards and benefits depending on the product they choose.

“Travel shouldn’t only be reserved for an elite few, yet for those who are not able to afford the luxury of travel right now, it’s best to set up a budget and save for a couple of months,” according to Stewart.

He also shares that travelers should remember that it’s better to pay for something big and lavish, like travel, upfront and in cash, as it helps to put them in a more stable and secure financial position in the long term.

The Bottom Line

As travel makes a steady return, consumers will be facing higher travel costs, as inflation and persisting economic challenges increase the cost of operations and product offerings.

Though financial solutions exist to support the many who are still eager to squeeze in a final trip before the end of the year, doing so with caution, and clear financial understanding can help them avoid costly mistakes that can decrease their future financial outlay.