Gone are the days when one had to save before planning a vacation. As the demand for travel rises, many financial institutions are providing the opportunity to book a trip now and pay for it later to increase accessibility to travel and leisure activities. Here's everything about the "travel now, pay later" option:
What is ‘travel now, pay later’?
‘Travel now, pay later’ services provide quick financing for travel. Consumers have the option of paying back the loan through the fintech platform or loan provider after returning from the vacation. The loan can be repaid in instalments without charge for a time frame of a few days to a few months, often up to three months, after which it starts collecting interest.
People may schedule their vacation without worrying about the cost upfront thanks to this option, which is available at the time of booking checkout. The service, which is primarily provided by the partner bank or non-banking financing company (NBFC) of the travel aggregator, is supplied to the traveller as digital credit.
Let us understand this with an example.
Let's say you wish to reserve your journey with ABC Travels Ltd. To provide ‘travel now, pay later’, the firm has teamed with a few financial institutions. You will be expected to repay the availed money at a specified annual percentage rate (APR), which includes an interest component and a number of fees, over a certain time if you pick this option.
You don't have to pay anything to the travel company after your reservation is finalised; you can leave for your vacation immediately. Only when you've returned from your trip does the payment cycle begin.
What are the key features of ‘travel now, pay later’?
If you are eligible for a zero percent APR offer, applying for this loan is the best option. If you have a solid credit history, the lender will provide you such an offer. For instance, if you consistently pay your credit card bill on time and have never missed an EMI before, you may be eligible for such an attractive deal.
Occasionally, there may be situations when you must travel instantly. These circumstances might include attending a relative's funeral, having a medical emergency, and more. Let's say one has been told they have a condition that requires treatment in another country.
Would one rather use the emergency money to cover the cost of travel and housing or would they rather want to pay for the treatment? In this situation, using a ‘travel now, pay later’ plan might be preferable.
These loans have an annual interest rate that can range from 13 percent to 30 percent, and the payback period can last up to 18 months. Additionally, the monthly instalment payback plan for the ‘travel now, pay later’ service begins one month after the reservation is booked.
In general, ‘travel now, pay later’ schemes have grown in popularity, especially among the millennial and GenZ demographics, as a result of widespread smartphone use, inexpensive internet, and the quick uptake of e-commerce. Additionally, although consumers view credit cards and personal loans as debt, paying for a good or service through an EMI is more acceptable.
However, there are no free meals in life. What NBFCs and TNPL participants refer to as "zero-cost EMIs" might not be as advantageous as the marketing implies.
Therefore, it's crucial to limit your luxury spending on vacations financed using this choice. You should also thoroughly study and comprehend the terms and conditions of these loans and inquire about any additional fees that could be applicable. Examine your present financial situation as well, since any EMI payment delay may result in a higher interest rate and a lowering of your credit score.