Vacation Now Pay Later Schemes Are Enticing, But Does It Make Sense To Go For Them?

With travel restrictions eased in India and summer holidays in full swing, it’s natural to catch the travel bug and plan a trip. But considering that the last couple of years have been stressful financially, you might not have enough savings to fund your trip.

A lot of travel companies and aggregators have started doling out offers such as Vacation Now, Pay Later (VNPL) to help people fulfil their travel dreams. Such deals help customers to book the holidays without paying for it immediately. They sure sound enticing but does it make sense to go for them?

What Are These Schemes?

These schemes are a variation of the buy now pay later (BNPL) schemes.

Click here to read more about Buy Now Pay Later Schemes

VNPL schemes allow you to purchase a holiday, but pay for it at a later stage, usually over a series of small instalments along with interest rate (if applicable). The interest rate for such schemes is usually around 15-30 per cent, and the repayment tenure can go up to 18 months.

For instance, those with a good credit history can opt for this scheme. Usually, the applicant’s credit worthiness is evaluated by the NBFCs (non-banking financial companies) partnered with the travel firm. While the traveller needs to pay 15-20 per cent of the cost of the travel package upfront, they would need to pay the balance after returning from the trip. If the entire amount is paid in a lump-sum to the NBFC, there are no additional charges. But, if you opt to pay in equated monthly instalments (EMIs), the NBFC will charge interest.

In fact, the terms in the VNPL schemes are similar to that of BNPL schemes. In the VNPL schemes, if you default on the payment of the instalments, your credit score would take a hit, and that could affect your prospects of getting a loan in future.

Some aggregators offer an interest-free window of 15-30 days. However, in case you default on any payment, you would have to pay a penalty of 2-3 per cent per month, or a flat late payment fee. Some of the firms offering VNPL also allow you to convert your high-cost purchases into no-cost credit for up to 3-6 months.

Who Is Offering Them?

Apart from fintechs, even travel companies like Thomas Cook and SOTC have launched ‘Holiday First and Pay When You Return’ schemes which let customers book domestic and international tours and then pay later after they come back from their holidays.

Some travel aggregators such as MakeMyTrip and Expedia, have also started offering pay later financing options.

BNPL (Buy Now Pay Later) start-ups, such as Uni and LazyPay have also observed travel emerging as one of their top categories in terms of customer spending in the last one year.

Uni is the newest BNPL player in the market. It is both a physical and digital card and allows the user to split transactions into three and pay them over three months with zero additional cost. This card works on a Visa network. Some of the top travel merchants of Uni include ClearTrip, EaseMyTrip, Indigo, Goibibo, and Paytm. Uni Pay 1/3rd can be used to book one’s ticket, stay, pay for food and other expenses during their travel.

It Pays To Be Careful

All said and done, this is also a type of credit, and, therefore, calls for some diligence in use.

Check The Terms And Conditions: It is important to note that not every trip-related expense may be covered by VNPL. While some aggregators give credit on some expenses involved with the trip, they might not agree to provide for others. Also check other terms and conditions that may come attached before going for it.

Check Your Budget: In the last two years, few people were able to go on holidays, and vacation costs had ceased to be part of the annual cash flow. The restlessness for taking a break may lead you to make irrational decisions which may not fit into your budget.

“Vacation is a discretionary expense and not an essential one. As a principle, no loan should be taken for discretionary expense. We recommend saving, investing and then harvesting the investments for vacation. Behaviour-wise, vacation is meant to add happiness to life and not stress,” says Renu Maheshwari, chief executive officer and principal advisor, Finzscholarz Wealth Manager and a Sebi-registered investment advisor.

“People should realise that a BNPL scheme is a loan and, therefore, BNPL providers can share your repayment behaviour to the credit bureaus, thus impacting your credit score,” adds Maheshwari.

While this does not mean you do not take a vacation, it makes sense to plan for it in advance rather than paying for it later.