Consumers are becoming more familiar with the concept of buying and paying for things over time. It’s called swiping a credit card and paying off the balance over several months or even years. But there’s a downside to carrying a credit card balance: reap the interest on those fees and spend more. If only there was a better way.
In fact, there may be. With the increasing availability of ‘Buy Now, Pay Later’, or BNPL plans, you can enjoy credit card flexibility without automatically exposing yourself to interest charges.
How does BNPL work?
BNPL plans allow you to spread out your payments to a specific purchase over a short period of time – usually up to 12 weeks. As long as you abide by the terms of your installment agreement, you won’t accrue interest charges or get stuck in annoying fees.
These days, many retailers (both physical and online) allow customers to pay with BNPL plans. And now, it looks like the choice is coming to the travel industry.
Expedia, for example, now allows travelers to pay for their reservations via a series of payments rather than having to pay for an entire trip up front. It’s an option that gives travelers more flexibility – but is this the right move for you?
When making a large purchase, such as paying for a flight and a hotel, it can be difficult to pay for it all at once. With the BNPL plan, you don’t have to. Alternatively, you can spread this payment over several months so that you don’t empty your bank account or take on debt that generates interest.
But one thing you should know is that BNPL plans do not give you who – which Plenty of time to pay off your purchases. Usually, you only get about 12 weeks. And if you don’t keep up with your payment schedule, there can be hefty fines and interest to contend with.
Additionally, if you fall behind on your BNPL payment schedule, this negative activity may be reported to credit bureaus. Results? The damage to your credit score makes it more difficult to borrow the next time.
Should you use a BNPL plan for travel costs?
As a general rule, you should only take trips that you know you can pay for directly. Accumulating debt in order to travel is a move you may regret. However, if you have the money to cover the trip but want a bit of leeway to pay for it to avoid feeling stressed about your cash flow, using a BNPL plan to pay for travel isn’t a bad idea.
Let’s say you saved $3,000 to cover a trip to Europe, and that money is already in your savings account. If the idea of cashing in all of that money at once is troubling, you may want to spread those payments out over three months—and that’s okay.
Furthermore, let’s say you need $3000 to cover your trip and you have saved $2500 so far. If you are confident that you can save the remaining $500 within two months, you may want to sign up for a BNPL plan. That way, by the time the $500 is due, there’s a good chance you’ll be able to get rid of it.
But if you don’t have money set aside for a trip, the BNPL plan will not be very useful. In this case, it is better for you to postpone your trip until you have enough available to cover its cost. And if it’s an emergency — for example, if you’re traveling to visit a sick relative or friend — you might be better off using a travel credit card, even if it means more interest on your flight and hotel.
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