It looks like some overseas travel will be back on the table from next week, with countries like Iceland, Israel and Portugal among those potentially open to quarantine-free trips abroad.
And while many Brits may have saved on overseas holidays last year and have more money set aside for a luxury holiday, the cost of holidays, particularly family holidays during school holidays, can be prohibitive.
As a result, consumers often choose to put them in a credit card and pay in installments, in addition to taking advantage of additional consumer protections.
But with buy now, pay later services like Klarna continuing to grow in popularity, an increasing number of travel-focused services have emerged.
Fly now, pay later: An increasing number of companies offer paid flights and vacations in instalments
These “fly now, pay later” providers seem to differ on the details, but they operate in much the same way.
They allow borrowers who pass a credit check to spread the cost of the vacation over multiple installments, in some cases up to 12 months, without including interest.
Andrew Hager, founder of personal finance site Moneycomms, said: ‘I think BNPL makes more sense for a big-ticket item like flights and holidays, rather than £50 worth of clothing, for example.
I’m sure holidays are going to be big business in the next 12 months, some people will be desperate to get a break in the foreign skies but won’t get the cost of the flight or the whole vacation as a lump sum after taking a vacation, etc.
“Obviously, these companies understand that the holiday business is going to be busy and are ready to take advantage of it.”
What companies are there?
The most famous example is butter, which This is Money wrote about last month.
Launched in 2017, it bills itself as a BNPL travel agency called Pay Monthly Travel, before renaming itself after overseas travel was canceled due to the pandemic.
But with vacation now possible again, it’s worth taking a look at what it has to offer.
Flights are available from 29 UK airports and, subject to a credit check, users can spread out the cost of flights and hotels in up to 10 instalments through its app or website. She said the group holidays could come later this year.
For ‘green list’ destinations, two return flights from London to Reykjavík, Iceland, can be taken in mid-June for £498.52, paid in 10 monthly instalments of £49.85.
Butter started life as a company called Pay Monthly Travel, and still brands itself as a “BNPL Travel Agency”
Meanwhile, a family of four can book a two-week holiday at a five-star hotel in Lisbon, Portugal, over the same period for £260.27 a month, or a four-star for £110.40.
Butter charges no interest on the instalments, but late payments come with a £12 fee and damages associated with the borrower’s credit score.
Like a credit card, borrowers can also choose to make a larger payment, or even pay off the entire balance if needed.
There are plenty of other similar companies around, including another known simply as Fly Now, Pay Later.
Like Butter, it has been authorized by the Financial Conduct Authority for a number of years and has been known by its current name since 2018.
It should be noted that file The FCA record states that it has not confirmed its details in the past 12 months.
Return flights to Lisbon for two adults can be had in June for around £10.30 a month paid over 10 months
It claims to work with the likes of Booking.com, Expedia, EasyJet, Kayak, and TUI, and offers payments through its own app and as a payment option at checkout from its partners.
The app allows holidays to be distributed in between two and 12 months’ interest-free installments, while those who use them on a separate payment can borrow “between £100 and £3,000 interest-free” for a holiday.
However, although its flagship offering is interest-free, borrowers may “have to pay a transaction fee, deposit, or interest fee.”
An example given on their website charges £100 + £800 off day transaction fee, which equals a representative APR of 51.8 per cent, which is about the same as that of a sub-prime mortgage.
The small version of Fly Now Pay Later includes an example where £800 leave is subject to a £136 ‘transaction fee’, giving the credit an APR of 51.8%
What do you want to notice?
Like the sound of £200 excursions paid for in £20 pieces, or a holiday paid for with no interest credit?
Be careful before you dive in, because it’s not easy to pay for an order of clothing a month after you’ve bought it.
Travelers have spent the past year tied up trying to figure out who owes them a refund for a canceled flight, before adding a middleman-provided credit into the mix.
There are several things to consider before using one of these providers.
Can they be paired with travel insurance, which is a must at the moment? Do they offer Section 75 cover like a credit card? Is it covered by Atoll? What is their refund policy?
“Personally, I would be cautious about using these companies without the S75 safety net,” added Andrew Hager.
Credit card purchases are covered by Section 75 of the Consumer Credit Act, which means that card providers share liability with the retailer for any breach of contract
‘You may also be protected under Section 75 of the Consumer Credit Act, because you’re lending money,’ said Brian Brown, of financial information site Defaqto, ‘but I would certainly confirm that with the provider.’
“I’d especially like to know who the credit provider is, because that’s the person you have to file the claim with.”
In the case of Butter, it depends on which airline flights are provided by.
Flights with six airlines, including EasyJet, Jet2 and Ryanair, are “financially protected by the airline,” its website says, “any other flights protected by the Butter program or flight supplier.”
ATOL Protection covers customers on most package holidays as well as some and is designed to ensure that customers of travel providers who go into bankruptcy are protected, refunded and repatriated if they are stranded abroad.
Butter also provides S75 protection, which means that the credit provider is jointly liable for any breach of contract by the retailer or service provider, and inquiries must be made through it.
Brown added: ‘We haven’t seen this method of payment before, but I would expect it to be covered by travel insurance in the same way as any other vacation.
You have an obligation to pay for the vacation, and if you have a valid claim, I would expect the insurance company to pay the money you owe the travel provider. However, buyers need to understand that travel insurance will not pay in all circumstances.
According to our findings, one in five does not cover cancellation costs after a positive test, 37 percent only cover them if the policyholder has to isolate, and 2 percent do not cover coronavirus-related medical expenses.
Buyers need to ensure they are protected if the UK government asks them not to travel.
When it comes to booking through these services in general, he said, “I would check the terms and conditions very carefully, because it’s possible that you may not be able to cancel and get a refund that you might be able to do if you booked directly with the travel provider.”
| cover type | Covered as standard on multi-trip annual policies | Covered as standard in single trip policies | Covered as standard in extended stay policies | Average |
|---|---|---|---|---|
| Covering medical bills | 98% | 97% | 98% | 98% |
| Cancellation as a result of a positive test | 78% | 77% | 81% | 79% |
| Cancellation due to self-isolation | 35% | 35% | 42% | 37% |
| Cancellation due to change of FCDO advice | 2% | 1% | 1% | 1% |
| Source: Defaqto | ||||
The credit installment option can also be very attractive. Which consumer group? It’s been said before about holiday financing this way: “Buy now, pay later.” Companies offer more flexibility at checkout, but they may tempt you to spend more than you want to.
When using it to pay for flights, you must ensure that you can pay for the total transaction in a relatively short period of time.
Because payments are taken automatically on the due date, you won’t be able to prioritize other important payments such as rent or council tax, which can mean you may turn to another high-cost quick credit to cover a shortfall, such as a payday loan or an overdraft.
As with any situation involving a third party, it’s also worth checking flight or hotel rates directly with the provider or through a separate comparison site, in order to ensure you’re getting the best possible rate.
Butter’s co-founder Timothy Davis said, “Butter makes a commission on the sale of a travel product in the same way a traditional travel agent does.
Therefore we do not need to charge the consumer any additional fees to fund their purchase nor do we charge them any hidden fees.
“The amount they see at the exit is the amount they will pay when the cost is spread out in ten instalments.”
Additionally, it’s important to read customer reviews — particularly how companies handled complaints last year as the pandemic wreaked havoc on the travel industry.
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