Are Buy Now, Pay Later Options Risking Your Holiday Security?

Introduction

As the trend of buy now, pay later (BNPL) options rises in popularity, especially for holiday bookings, experts caution that consumers may be sacrificing essential protections. This payment method, which allows travelers to spread the cost of their trips over several installments, is becoming increasingly common among hotels and travel agencies. However, it may expose users to significant risks when compared to traditional credit cards.

The Rise of Buy Now, Pay Later

In recent years, BNPL has seen dramatic growth, with various holiday companies and hotel chains adopting this payment choice to make travel more accessible. For instance, the budget hotel chain Travelodge recently introduced a catchy slogan, “Stay now, pay later,” allowing guests to pay through popular BNPL providers like Klarna, Clearpay, and PayPal, which dominate the UK market.

Additionally, several travel agents and flight booking platforms have launched offerings under the phrase “Fly now, pay later.” This enables customers to avoid paying the full price of their flights upfront, opting instead to distribute payments over time. Notably, Airbnb announced its partnership with Klarna in late 2023, allowing guests to pay for their stays in installments for reservations ranging from £35 to £4,000.

Rising Interest in Flexible Payment Options

Recent data indicates a growing consumer interest in flexible booking options, as evidenced by a surge in Google searches for terms like “buy now pay later flights” and “buy now pay later hotels.” This trend suggests that travelers are actively seeking ways to manage their budgets more effectively while planning their trips.

Understanding Buy Now, Pay Later

BNPL is a form of credit that typically breaks down the total cost of a purchase into three or four manageable installments. If consumers adhere to their repayment plans, they generally incur no interest or additional charges. However, experts express concerns regarding the potential pitfalls of this payment method. Some individuals might take on loans that exceed their financial capacity, leading to missed payments, extra fees, and long-term impacts on their credit ratings.

Consumer Protections at Risk

While BNPL offers convenience, it lacks the robust consumer protections associated with traditional credit cards. Matthew Sheeran from Money Wellness, a website focused on debt solutions and budgeting, emphasizes this important distinction. He notes that payments made via credit card are protected under section 75 of the Consumer Credit Act. This law holds the credit card provider jointly liable if a purchase between £100 and £30,000 fails to meet expectations.

In contrast, with BNPL, if issues arise, consumers often find themselves in a position where they must independently resolve disputes with the retailer or travel provider. This process can be both stressful and time-consuming. Sheeran advises travelers to investigate whether their BNPL provider has any dispute resolution processes in place, but he cautions that these are typically less reliable than the protections offered by section 75.

The Dangers of BNPL in Travel

Despite its growing prevalence, BNPL might not be the best choice for larger travel expenditures. Maisie Blewitt from Transfer Travel, an online platform for buying and selling unused trips, points out that if consumers opt for BNPL and a travel provider, such as an airline or hotel, goes out of business, their payments could be at risk.

Moreover, the process of obtaining refunds can be complicated. If a trip is canceled, payments may continue to be deducted, leaving customers in a difficult financial situation.

Conclusion

In summary, while buy now, pay later options can provide flexibility for holiday planning, they also come with inherent risks that travelers should carefully consider. The lack of consumer protections compared to credit cards means that using BNPL for travel-related expenses may expose individuals to potential financial losses. Therefore, it is advisable for consumers to weigh their options and consider the implications of their payment method before embarking on their next journey.