With prices rising and airfares still sky-high, the buy now, pay later (BNPL) boom has officially arrived for the holidays. More than half of Americans now use BNPL and nearly one in five plan to use it to pay for vacations, according to The New York Times (NYT). (1)
But experts warn that while splitting payments for a beach getaway may seem harmless, it can carry hidden risks.
BNPL plans divide payments into installments. “If you divide anything into four, it will be more affordable, but life happens and people forget, fees add up and you have very little recourse,” Julie Beckham of the Rockland Trust, which is studying BNPL plans, told the NYT.
Before booking your trip, make sure you know the pros and cons of BNPL.
“Buy now, pay later” (BNPL) plans attract consumers with their convenience. These short-term installment loans allow users to break down a one-time expense, such as a vacation package, into smaller, more manageable payments.
According to the Consumer Financial Protection Bureau (CFPB), most basic “pay in four” plans do not require a strict credit check and do not charge interest if payments are made on time. That makes them attractive to people looking to smooth cash flow in the short term. (2)
But the disadvantages can hit hard. The CFPB reports that late payment fees are common and those penalties can add up quickly, sometimes eliminating any benefit from spreading out payments.
According to the aforementioned New York Times article, services like Afterpay can charge up to $68 in late payment fees, while Klarna caps its fees at $7. And unlike credit cards, BNPL loans typically don’t include travel protections, insurance, or rewards points. “When you travel, when you use a credit card, you are protected,” Beckham told the NYT.
The risks increase further with longer-term BNPL loans, which often start accumulating interest immediately. Stanford researcher Ed deHaan told the NYT that he calls it “a time for buyer beware,” warning that “the terms are actually worse than a credit card because most credit cards don’t accrue interest until after 30 days.”
Beyond fees and interest, consumers should be wary of accumulating debt. Because BNPL makes it so easy to click “buy now,” it can be easier to rack up multiple small debts that add up quickly.
Despite the risks, BNPL travel products are mushrooming. Flex Pay partners with United Airlines, Carnival Cruise Line and Wyndham Hotels to offer loans from 0% to 36%. Paylater Travel allows users to book flights now and pay over 26 weeks.
The use of BNPL is widespread and increasing. Federal Reserve data shows usage increased to 14% of adults in 2023, up from 10% in 2021. (3) The Federal Reserve found that consumers with financial difficulties are among the most frequent users of BNPL.
The Consumer Financial Protection Bureau (CFPB), which has been closely monitoring the industry, also found heavy use of BNPL among borrowers who have multiple BNPL loans and high credit card balances.
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Still want to use BNPL for traveling? Do it only if you have the cash flow to cover all upcoming installments, not because you expect future income.
Here are some key considerations:
Read the fine print. Please see all service fees and refund policies. If you cancel a booking, BNPL platforms may still charge service or cancellation fees, and you may need to continue making payments while you wait for a refund from the provider.
Refunds from airlines or hotels can take weeks, temporarily leaving you out of money and putting short-term cash flow stress.
Be aware of currency risks. If you book your trip in a foreign currency but reimburse it in US dollars, exchange rate fluctuations may increase your costs. Also avoid dynamic currency conversion (DCC) at checkout: its marked-up rates can make your trip more expensive. In short, paying later can mean paying more.
Schedule your payments carefully. Sometimes BNPL allows you to travel before finalizing payments. But if an emergency or loss of income occurs after your trip, late payments can result in late fees or damage your financial stability.
Know the credit impact. The effect of BNPL on credit depends on the provider. Some providers now report loans to credit bureaus, and that type of reporting is becoming more common. That means that BNPL behavior may begin to affect your credit score more directly, which means that BNPL behavior may increasingly affect your credit score.
Consider the opportunity cost. Each BNPL payment is money you can’t put toward an emergency fund, high-yield savings, or investments. Those “lost” returns are an invisible cost.
Compare to a rewards credit card. Using a BNPL instead of a rewards credit card can mean losing travel miles, hotel points, or statement credits—benefits that can easily outweigh the short-term convenience of BNPL.
BNPL can make your dream vacation possible, but it can also ruin your finances if used carelessly.
We rely only on verified sources and credible third-party reports. For more information, see our editorial guidelines and ethics.
New York Times (NYT) (1; Consumer Financial Protection Bureau (CFPB) (2); Federal Reserve (3).
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
