Buy-Now, Pay-Later and Travel: What to Know

Uplift, a buy-now, pay-later company primarily focused on travel, counts United Airlines, Royal Caribbean Cruises and SeaWorld among its 200-plus partners. Affirm Holdings, which works with American Airlines, Delta Vacations and Expedia, says its travel business grew eightfold compared with the prior year for the quarter ended Sept. 30.

Buy-now, pay-later services say they offer flexibility to customers. But there are pitfalls. While some companies offer interest-free travel deals to qualified buyers, interest on some deals can run above 30%. That can add hundreds more dollars to the trip’s total cost.

They have also drawn attention from regulators. In December, the Consumer Financial Protection Bureau launched an inquiry into such plans—which can be used to pay for everyday items—to learn more about their role in consumer debt and how they use consumer data.

Here’s what to keep in mind about buy-now, pay-later for travel:

Look closely at the plan’s terms

Customers booking their travel through an airline, cruise or travel company site might see the buy-now, pay-later option presented at checkout. Those who choose this method will be prompted to provide information to the buy-now, pay-later company, which will determine whether they qualify for a loan.

This method may feel convenient, but buyers should examine the terms of the plan, financial planners say.

David Tuzzolino, founder of PathBridge Financial, a firm that specializes in financial planning for people who love to travel, says he understands the desire to travel. But “taking out a high-interest loan to do it is something that I certainly wouldn’t recommend,” he says.

Some buy-now, pay-later plans offer zero-percent interest for qualified buyers. Southwest Airlines recently ran an interest-free promotion on select flights to Hawaii financed through Uplift. The company said it received “great interest” from customers, but declined to give specific figures.

Uplift and Affirm say their interest-bearing travel plans charge simple interest, meaning consumers pay fixed amounts of interest that they agree to up front. The interest doesn’t compound over time as it does with a credit card.

Tom Botts, Uplift’s chief commercial officer, says the average interest rate for Uplift plans is in the midteens.

Examine your budget

Financial planners advise calculating the total cost of the trip and having a clear plan for paying off the loan.

Marsha Barnes, founder of The Finance Bar, a service that promotes financial wellness for women and couples, has had clients use buy-now, pay-later options for travel.

If you know that you’re going to get a bonus next month that will allow you to pay off the loan, she says, it could make sense to take it on. But if you’re already struggling to pay your bills or build an emergency fund, she suggests waiting to book or looking for cheaper alternatives: “While these options seem enticing and a way to get to that much-needed vacation sooner, evaluate your circumstances.”

Be aware of cancellations

Travelers considering buy-now, pay-later options should look closely at cancellation policies, financial planners say. Companies such as Uplift and Affirm say refunds and cancellations are subject to the travel company’s policy.

Travelers might be subject to the original terms of their payment plan, even if their itinerary changes. Say a couple books a March flight with Uplift and agrees to pay it off over three months. Then their plans change, and they get a credit for a future flight from their airline while rebooking for September. Per Uplift’s policy, the terms of their original agreement still apply, so their loan is due to be paid in full over the original three-month period. If you get a refund for your trip, you won’t owe any more interest, but you won’t get a refund for the interest already paid, Uplift says.

For Affirm loans, after a traveler’s cancellation or refund has been processed by the company, Affirm will issue a refund minus any interest paid toward the loan, a spokesman says.

Use buy-now, pay-later plans strategically

Customers have used Uplift to travel for funerals or other unexpected emergencies, Mr. Botts says.

“That ability to travel literally on an instant and be able to pay for it over time is super critical in terms of their ability to actually do what they need to do in life,” he says.

Financial planners generally advise against going into debt for travel outside of emergencies, favoring a savings plan instead. Jake Northrup, founder of the financial planning firm Experience Your Wealth, in general advises his clients to create separate savings accounts for travel that they contribute to throughout the year.

Consider your credit score

Buy-now, pay-later plans are popular among people with limited credit histories and those who don’t want to max out their credit cards. But it’s important to consider the effect these plans can have on your credit score, financial advisers say.

Mr. Botts says Uplift reports both on-time and late payments to credit bureaus. He says customers appreciate the positive reports to help build their credit.

Affirm reports on-time and late repayments for some larger loans that have multi-month terms to Experian, a credit-reporting firm. Credit scores are used by many lenders to evaluate credit-card, auto-loan and mortgage applicants.

Uplift says if a payment is more than 30 days late, it can be subject to additional interest that will accrue daily. Reported late payments can hurt your credit score or your chances of getting another loan.

Write to Allison Pohle at [email protected]