Is there anything better than taking a much-needed vacation? It’s surely one of the biggest joys in life to pack a suitcase and hit the road. Paying for it can get a little sticky, though. You’ve likely heard of “buy now, pay later” (BNPL) services. This method of financing a purchase over several weeks or months has become quite popular, and a lot of merchants (online and in person) are offering it alongside options to pay with cash or credit card.
In brief, BNPL works by giving you the chance to pay for a purchase by splitting it into equal payments over a period of several weeks. Some services offer 0% APR, too, so using this payment option won’t cost you anything extra — assuming you can make the payments on time and in full. If you can’t, you might face interest charges, delinquent accounts, or major credit score damage (if the payment service reports to the credit bureaus; not all do). Some travel websites, like Expedia, are now offering BNPL to cover the cost of travel.
But before you rejoice and rush off to book flights and hotels and pay for them in installments, wait just one second. Personally, I wouldn’t use BNPL to cover vacation costs, and you might want to reconsider, too. Here’s why.
First and foremost, I’d skip the BNPL for travel costs because a vacation isn’t a necessity. It’s really not a good idea to borrow money for a vacation — it’s best to avoid debt for all but necessary expenses. As good as it feels to plan a trip, it feels much better to do so knowing that you’re not committing your future self to make loan payments. It’s a much better idea for my personal finances (and perhaps also yours) to save money ahead of time to cover flights, hotel rooms, and beyond.
I’ve been saving for a big 40th birthday vacation for the last few months, and in addition to ensuring I pay myself first, I’m also keeping that money in a special place. I opened a high-yield savings account with an online bank last year, and I’ve seen my APY climb over that time, to the point that I’ve earned more than $1,000 this year on the money in the account — for doing absolutely nothing but keeping it in there. If a big vacation is in your future, I recommend taking a look at the best savings accounts and picking a winner.
Not all of these BNPL providers run a credit check, but some do, and depending on the provider, it could be either a soft or hard credit check. A soft credit check doesn’t impact your credit score, but a hard inquiry could ding your score by a few points. A hard inquiry is more likely if you’re borrowing over a longer period of time (which makes sense — more risk for the lender). For most people and in most situations, this isn’t really a big deal — your credit score will recover.
But if you’re already between two credit score ranges and have a big expense coming up (like buying a home with a mortgage loan), losing a few credit score points could be enough to impact your eligibility for the loan, as well as increase the interest rate you qualify for. Hard credit checks are impossible to avoid in most borrowing circumstances, be it for that mortgage loan or even a new credit card application. But I certainly wouldn’t want to lose a few points from my credit score because of a vacation.
When it comes time to start paying for more of the bits and pieces of my big trip, I’ll be leaning on my favorite travel rewards credit card (which I’ll be paying off using that aforementioned saved cash). Why bother paying with a credit card if I have the money put aside? Well, for starters, I can’t pay for online purchases with cash, and my debit card doesn’t come with as many robust fraud protections as credit cards do.
The best travel credit cards offer other benefits — I booked the flights through my card issuer’s travel portal, meaning I could use points to pay for part of the cost and also earn a higher rewards rate on the money I spent. My card also comes with rental car insurance — I hope not to need it, but since I’ll be booking a few daily car rentals, I will feel a lot better knowing I’m protected. Some travel credit cards also offer broader travel insurance, as well as free checked bags and status with airlines and hotels. No matter the kind of traveler you are, there’s a travel credit card out there for you.
Ultimately, BNPL is best approached with caution, no matter what you’re using it for. You should probably think twice before using it for a vacation. Explore other options to pay for your upcoming travels instead.
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