Several months into the pandemic last year, Zachary Sempek and his new wife were desperately craving a vacation.
Their wedding had been rescheduled multiple times, the honeymoon scuttled by Hawaii travel restrictions. And they were still grieving the death of her father in late 2019 from cancer.
"We felt we sort of deserved a week off to relax,'' the 29-year-old insurance claims worker said.
Money was tight, and they didn't want to dip into wedding cash earmarked for Hawaii or put the $1,500 vacation package to San Francisco on a credit card. So when Southwest Vacations offered the option of a monthly payment plan during online checkout – something Zempek had only previously seen for retail purchases – they jumped on it, high interest rate and all.
"Having everything just simplified into one low payment worked,'' Sempek said.
Buy now, pay later plans, a high-tech twist on layaway plans except buyers get the goods (or vacation) upfront instead of when paid off, have exploded in popularity for online shoppers buying everything from clothes to pricey exercise equipment like a Peloton bike.
March spending via payment programs from Affirm, Afterpay, Uplift, Klarna and others grew 166% over the same period in 2020, and year-to-date growth is tracking at the same rate, according to new statistics released last week by Adobe Analytics.
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The percentage of online transactions using buy now, pay later plans in North America is projected to grow from 0.9% in 2020 to 3% in 2023, according to Uplift, citing a Worldpay Retail Global Payments Report.
Travel is seen as a big growth area, though, unlike many retail buy now, pay later programs, travelers typically pay interest on the purchase and make payments for a longer term.
Expedia, Priceline, Hotels.com and several airlines, including United, Alaska, Air Canada, Allegiant and Spirit, already offer the option. So do several airlines' independently operated vacation package arms, including Delta Vacations and United Vacations. Cruise lines are in the game, too, with Carnival, Norwegian and Royal Caribbean among those offering the option.
And two key players joined the list this spring.
In April, Southwest Airlines, the nation's largest domestic carrier, began offering a buy now, pay later option for flights through Uplift. Southwest Vacations, which is operated by another company, has offered Uplift financing since 2017, and now accounts for more than 10% of the vacation site's eligible bookings, according to Uplift CEO Brian Barth.
Southwest began studying whether to add a financing option for travelers shopping for tickets on its website before the coronavirus pandemic began. Then came the online shopping boom as the country went into lockdown, with some buyers' budgets stretched thin by the economic fallout from the coronavirus crisis.
"During the pandemic, the appeal of installments and the use of installment products really took off,'' said Jonathan Clarkson, the airline's managing director of loyalty, partnerships and products.
The appeal of a buy now, pay later option for Southwest: more ticket sales.
"For us it's really just about broadening (payment) options and booking those flights that maybe we wouldn't have booked because they were too expensive to pay for at once for somebody,'' Clarkson said.
Vacation rental company Vrbo, which is owned by Expedia, also just added a buy now, pay later option via Affirm. Affirm is an industry leader created in 2012 by the co-founder of PayPal.
"This benefit enables families to plan and book future vacations now and pay for them later,'' Mike Sutter, Vrbo's vice president of product management, said in a statement when the new payment option was announced in late March.
For those itching to get away, the pitches for the latest buy now, pay later programs are enticing.
"Explore the world now. Pay over time.''
"Book your dream trip now. Pay later.''
"Upgrade to the rental car you want. Just $47.07 per month.''
Uplift CEO Brian Barth says the payment plans are a "travel enabler.''
"We felt like we want to help people create the best experiences of their lives, have the memories,'' he said.
The company also pitches payment plans as a way for travelers to take advantage of fare sales and other promotions aimed at early bookers.
"Unlike financing other things in your life, the key to travel is you need to be able to buy when prices are good,'' he said. "You could pay two times or more if you don't book early.''
Even with interest charges built into the monthly payments, Barth calls it an attractive proposition, a vacation credit line with a defined payback plan.
"If you do the math on it, it's not very much money to have a year to pay for it,'' he said.
Travelers seeking to spread-out payments for a vacation will see the option during online checkout.
On Southwest, the payment options are credit/debit card, PayPal or Uplift financing.
Carnival Cruise Line gives travelers four choices on its website, including financing through Uplift.
Clicking buy now, pay later when paying for a trip is basically taking out a vacation loan, albeit one with an answer in seconds.
The websites flash an estimated monthly payment, including interest where applicable, for the trip. But those are sample rates. Southwest's website quoted monthly payments starting at $178.49 for 11 months via Uplift instead of one payment of $1,824 for four round-trip tickets from Chicago to Orlando, Florida, in late July. That was based on an interest rate of 14.99%. The total price with financing: $1,963, or $139 extra.
Actual terms are dependent on travelers' credit and the length of the loan. Interest rates for trip financing start at 7% for Uplift and 10% for Affirm and go as high as 36%, the companies say, though some travel companies occasionally offer zero-percent financing to qualified buyers. (The loans are not available in select states due to local regulations.)
Repayment terms and other terms vary. Southwest offers six- and 11-month payment plans and has a minimum purchase of $100. Vrbo renters can pick from payment plans of three months to 18 months depending on the total price of the rental. Budget carrier Allegiant Air, which also sells vacation packages, has an $800 minimum, Southwest Vacations, $500.
Affirm and Uplift do what they call a "soft" credit check to determine eligibility for financing and the interest rate and say applying doesn't affect credit scores.
For a hypothetical cruise purchase via Uplift on Carnival last week, I was asked for the last four digits of my Social Security number, annual income and address, among other personal information.
Monthly payments are definitely easier on the budget than a lump sum, at least in the short term, but is it wise for travelers to finance a vacation?
Mike Sullivan helps people get out of debt at the nonprofit credit counseling and debt management firm Take Charge America.
He doesn't see using services like Affirm and Uplift for a vacation as any different than putting a trip on a credit card.
"These are just virtual credit cards,'' he said. "You can call it what you want. It's credit. You're using credit, and there will be costs, there will be effects.''
He said he is not opposed to buy now, pay later vacations but said travelers need to zero in on the total cost of the trip when weighing payment options.
The best buy now, pay later option, and one that trumps using a credit card, he said: 0% interest offers.
Those aren't prevalent in travel like they are in retail, but there are occasional offers. Vrbo offered free financing for a few weeks when it introduced payments through Affirm. Carnival, vacation rental site Vacasa and the all-inclusive resort chains Secrets and Dreams are among those currently offering zero-percent financing to qualified buyers.
Whatever the interest rate, Sullivan said consumers need to make sure they don't book a bigger trip than they can afford on credit, no matter how much they need a mental health break after not traveling for more than a year.
"There's a temptation to do things, perhaps, that you wouldn't otherwise do,'' he said. "So I'd be careful about that.''
A splurge on an overwater bungalow in Tahiti might not seem worth it months after the trip when the loan payments are still being deducted from a checking account.
Uplift's Barth said the company's travel financing plans are not designed to encourage impulse purchases.
"Nobody wants to get people into (financial) trouble because you’re not going to get paid back,'' he said.
Chuck Bell, programs director in Consumer Reports' advocacy division has reviewed complaints filed against buy now, pay later providers with the Better Business Bureau and Consumer Financial Protection Bureau.
One trend that popped out: Consumers often aren't aware they are no longer just dealing with a travel company if issues arise.
"That's the thing I think is confusing: they don't necessarily understand by electing to get this loan, now you've invited a third-party financing arm in between you and United Airlines or whoever you're doing business with,'' he said.
That's not a problem if everything goes well with the trip.
But travel is an area where things don't always go according to plan, especially during a global pandemic that led to an unprecedented plunge in travel and a surge in refunds and travel credits. Cruise lines still haven't resumed sailing in U.S. waters.
"If you’ve ever experienced travel disruption or distress, you know that you might be on the phone a long time just with the airline or just with the hotel,'' Bell said. "Do you really want to have two times that experience?''
Sempek and his wife, Abbie, ended up having to cancel their mid-December mini-moon to San Francisco because of increased travel restrictions in California ahead of the holidays.
He called Southwest Vacations multiple times and was endlessly on hold. When he finally got through to customer service representatives and, later, a supervisor, he was told he was not eligible for a full refund because he didn't buy the travel insurance.
So he only got about half of his money back in the form of Southwest Vacation travel credits. He still has 19 payments of $80 remaining with Uplift and never left Nebraska.
Sempek doesn't blame the middleman but says the experience taught him not to go into debt for a vacation.
"Going forward, if I can't afford it, then I don't need it,'' he said.
One thing travelers who financed trips often don't realize, Bell said: They might still owe money on the loan even after a full refund from the travel company.
"The consumer is still on the hook for paying the interest on the loan,'' he said. "People don't really think that would be fair, even though that would be happening if they pay for it with a credit card.''
Robert Owens and his husband were booking a Carnival cruise to Mexico early last year when they noticed the option to pay over time.
Rather than pay $1,370 upfront for the five-night cruise to Mexico, they could pay for it in 18 monthly installments of $95, or a total of $1,710.
The young couple had already purchased an iPad and clothes using the buy now, pay later option because it's more palatable for their budget.
The May 2020 cruise, to celebrate their birthdays, was canceled. When they received word of a refund several weeks later, it was $300 short of the amount they were expecting.
"They told us it was the finance charge, and they were not giving it back to us,'' the 30-year-old said.
Owens works in social media and customer service and said he was particularly peeved at what he saw as a lack of empathy from Uplift representatives.
"It was like, 'This is what’s going on and this is what you're going to deal with and you're going to like it,' '' he said.
He said his mother was thinking of financing an upcoming cruise with his grandmother, and he talked her out of it.
"I would never do it again,'' he said.
- Zero in on the interest rate and compare it with other options, including credit cards.
- Look for zero-percent financing. Vrbo offered it until April 11. Carnival, Allegiant and some resorts and vacation package operators still offer zero percent on some purchases to eligible buyers.
- See if the company has any other options, with no interest charges. Carnival, for example, offers an "Easy Pay'' program with a small down payment and four monthly installments for cruises booked at least five months in advance.
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