Individuals must understand that Buy Now, Pay Later (BNPL) schemes essentially offer loans, and providers can report your repayment behaviour to credit bureaus, potentially affecting your credit score
In recent years, the travel industry has witnessed a surge in 'holiday now, pay later' schemes, especially targeting women travellers. These schemes offer the allure of immediate travel without the financial burden, allowing individuals to spread the cost of their holiday over time. While the concept may seem appealing at first glance, it's crucial to carefully evaluate the terms and implications before committing to such schemes.
'Holiday now, pay later' schemes function similarly to unsecured loans, wherein travellers can book their holiday packages upfront and repay the amount in instalments over an agreed-upon period. These schemes often come with high-interest rates ranging from 20 per cent to 30 per cent per annum, significantly increasing the overall cost of the holiday.
“Firstly, these schemes come with high-interest rates, which could inflate the overall cost of your travel. Additionally, opting for such schemes can negatively impact your credit score if you fail to make timely payments, potentially affecting your ability to access credit in the future. It’s a risk that’s not worth taking lightly, especially when it’s about your creditworthiness,” Priti Rathi Gupta, Founder & MD, LXME, a financial platform for women said.
For women travellers, these schemes offer the convenience of fulfilling their wanderlust without immediate financial constraints. It enables them to plan and enjoy their dream vacations without having to worry about upfront expenses. However, it's essential to recognize the potential risks associated with such schemes, primarily due to the high-interest rates involved.
“As a general rule, loans should not be taken out for discretionary spending. Instead, we advise prioritizing saving and investing, then utilizing those investments for vacation expenses. From a behavioural standpoint, vacations should contribute to happiness rather than stress. Individuals must understand that Buy Now, Pay Later (BNPL) schemes essentially offer loans, and providers can report your repayment behaviour to credit bureaus, potentially affecting your credit score,” Renu Maheshwari, chief executive officer and principal advisor, Finzscholarz Wealth Manager and a Sebi-registered investment advisor said.
While spreading the cost of a holiday over time may seem convenient, it's crucial to consider the long-term financial implications. The high-interest rates associated with 'holiday now, pay later' schemes can significantly inflate the total amount repayable. Moreover, missing or delaying payments can lead to additional fees and negatively impact one's credit score.
Alternative Financing Options
Before opting for a 'holiday now, pay later' scheme, women travellers should explore alternative financing options. “There are smarter ways to fund your vacations without risking your financial future like setting up a dedicated travel fund and investing regularly,” Gupta said. Additionally, budgeting and planning can help manage travel expenses more effectively without resorting to high-interest financing.
When evaluating the value proposition of 'holiday now, pay later' schemes, women travellers should carefully weigh the benefits against the costs. While immediate gratification may be tempting, it's essential to consider whether the additional interest payments justify the convenience. Assessing one's financial situation and future obligations is crucial in making an informed decision.
For women travellers considering 'holiday now, pay later' schemes, it's essential to mitigate financial risks by thoroughly understanding the terms and conditions.
“More and more businesses are targeting products towards women as they see a segment growing quickly and still learning nuances. They tend to sometimes misrepresent or put things in fine print. Reading the fine print and asking specific questions would help women understand these products and their expenses better,” Shwetha Jain, financial planner, CEO, and founder of Investography, a financial planning firm said.
While 'holiday now, pay later' schemes may offer a convenient way for women travellers to fulfil their travel aspirations, it's essential to approach them with caution. The high-interest rates and potential financial risks associated with such schemes warrant careful consideration and thorough evaluation. By exploring alternative financing options and understanding the implications, women travellers can make informed decisions that align with their financial goals and travel aspirations.