The concept of “buy now, pay later” for travel is interesting. The basic idea is just as it sounds: purchase travel now, such as a flight or hotel stay, and pay for it over time. In essence, you’re securing a loan that a lending entity might call a point-of-sale loan.
We’ll talk about this concept in detail in the following article. We’ll also go over whether it’s a sensible idea if you’re thinking about traveling this year.
Why Consider a Point-of-Sale Loan?
Let’s say you’re at a financially stable point right now. Maybe you figured out the best way to consolidate credit card debt, and you’re making enough money to cover your regular expenses. You’ve also worked hard for the past couple of years during the pandemic. Now, you want to take your first vacation in a while.
You might not have enough cash to pay for your flights, hotel stays, and other trip-related expenses. However, you hear about so-called “point-of-sale” loans that you can get from travel sites like Expedia or Carnival.
The point-of-sale loan, also called a “buy now, pay later” loan, lets you sign up for a payment plan. This way, you can plan a trip even if you don’t have the funds to pay for it upfront. You might have seen this loan option on a retailer’s website or a loan provider’s website.
How Do These Loans Work?
If you opt for a point-of-sale loan, you’ll need to make installment payments until you completely pay off the purchase. In a sense, it’s similar to a short-term loan you’d get for some other purpose besides a vacation.
The lending entity will usually stipulate that you must pay off the loan through bi-monthly or monthly payments. If you feel like you can afford that, accepting the loan might not be a bad idea.
The thing to watch out for is the interest rate you’ll be charged if you can’t pay the loan on time. Point-of-sale loans are infamous because they often come with interest rates that can reach 30% or higher. That’s even higher than the APR on most credit cards. The best way to avoid paying interest is to automate the payment by providing your bank account or credit card information.
Be Prepared for a Credit Check
If you apply for one of these loans, you will probably be redirected to a lender’s website. There, you will be informed whether they will do a credit check to determine your eligibility.
Some sites won’t do a credit check at all, while others will do a soft credit check. In some cases, though, the lender may conduct a hard credit check. A hard credit check is when a company reviews your credit history as part of the loan application process, and that request is recorded on your report.
A hard credit inquiry will temporarily lower your credit score, so you may decide not to go for the loan if you see this is the company’s policy.
Should You Get a Buy Now, Pay Later Vacation Loan?
If you intend to take a vacation this year, but you don’t have the cash to do so, getting a buy now, pay later vacation loan might make sense. You should understand that you’ll have to make installment payments for a set amount of time to pay back the loan. You will also need to be mindful of the interest rate on the loan if you can’t pay it back expediently.
You’ll want to read the details accompanying the loan application process if you decide it’s something you want to pursue. Be mindful of whether the loan company will give you the loan without a credit check or whether they will do a soft or hard credit check to approve your candidacy.
Exercise caution when looking into a point-of-sale loan. You may find that it makes sense for you, though. If you’re eager to take your first vacation in a while, you can at least investigate this option.
