Arriving at the airport and jumping on a plane to sunnier climes is many people's idea of a good time, but with the rise of travel prices and the overall surge in the cost of living, booking a holiday has become even more of a luxury than it already was, falling down a list of priorities. However, recent research suggests that younger generations, such as Millennials and Gen Zs, are searching for alternative routes to get a holiday in the bag. According to a recent report by NerdWallet, nearly one in five travellers this year plan to use a Buy Now, Pay Later (BNPL) scheme to fund their travelling adventures, but it's not without risk.
It's become so prevalent that global Google searches for 'travel loans' have increased by 233 per cent this month alone, but experts are keen to stress the "dangers" that can often come with this slippery slope. GigaCalculator and Paul Ferrara, Senior Wealth Counsellor at Avenue Investment Management, have shared their advice that holidaymakers should take note of before using a BNPL scheme to book their dream trip.
© Getty ImagesThe 'dangers' that come with BNPL methods
The experts note that while the allure of BNPL is tempting to those who are desperate to jet abroad, it's important to keep your wits about you to prevent a "spiral". "These BNPL products may appear to be a tempting finance method to finance a holiday, and indeed, it may seem appealing with the prospect of interest-free payment terms. But there are dangers attached to them," says Paul Ferrara. "In the event of the failure to pay on time, high interest rates may be charged, and these will be considerably higher compared to those charged on conventional loans. It's easy to lose control over several BNPL agreements and forget about payments, which will harm your credit rating."
He added: "Although the concept has the benefit of immediate access to goods and services, it has a disadvantage of having short repayment periods that pressure individuals to meet the deadlines without reflecting on other financial obligations. This can result in a debt spiral of late payment and more debts."
Important things to know before booking
The experts note that there are three important things to know before booking with a BNPL. The first is considering that hidden costs can apply. "Although at the surface many BNPL payment schemes seem like no fees are attached to the repayments, it's important to fully research this so you are aware. Many schemes market themselves as 'no-fee', but dig deeper and you'll find penalties for late payments, extra charges for longer repayment periods, and in some cases interest rates higher than traditional loans," says Gigacalculator.
© Getty ImagesThe other is to note that using BNPL will distort your view of the actual cost of your trip. It's important to keep reality at the forefront of your mind so you don't fall down the slippery slope. "You need to be aware when utilising BNPL payment options that it can trick your mind into thinking you are paying less than the reality. Although the smaller payments may seem more manageable and budget-friendly, they must not warp your view of how much the total holiday is. Your holiday spending budget should remain the same."
© Getty ImagesThe third is to keep in mind changing financial circumstances over time and try to forecast your finances so that you know how you'll manage the 'paying back'. "When taking out any loans or repayment options, it's crucial to have a wider view of your financial situation. You shouldn't be borrowing more than you can realistically afford to pay back. Additionally, it's important to plan ahead and make sure you are comfortable if any hidden costs arise in your budget. Although it might seem that you can repay the instalments straight away, will this still be the case if you have a new, unavoidable bill that crops up?"
How to avoid financial burden
Paul adds further: "To people who want to evade the financial burden, it is recommended to read the conditions, keep the payments in order, and, where possible, save money on the holiday or choose less expensive ways of travelling."
