Want to book a flight but pay for it next year? Here’s How It Works – Up News Info

Travel demand continues to rise, as do airline ticket prices.

Soaring prices are forcing some to cut spending, but others are finding new ways to pay for vacation plans.

More and more airlines are partnering with “buy now, pay later” companies to give customers the option of paying for their flights in instalments, instead of a lump sum payment. Some airlines even allow travelers to fly before the airfare is paid for in full.

“Consumers have become accustomed to using ‘buy now, pay later’ in retail and are now excited to be able to use it in travel,” said Tom Botts, chief commercial officer of BNPL Uplift.

But “it’s not about giving consumers trips they can’t afford or encouraging them to take trips they shouldn’t,” he said. “It’s about helping consumers budget and pay for those dream trips.”

Uplift has partnered with over 30 airlines including United Airlines, Lufthansa, Air Canada and AeroMexico.

“Implementing BNPL was part of AeroMexico’s payments evolution to provide our customers with more comprehensive payment options,” said Daniel Vega, director of AeroMexico.

“Customers will definitely buy their plane ticket for the vacation if they have affordable installments compared to a large upfront payment,” he told CNBC via email.

Uplift is “100% focused on leisure travel,” Botts said. He added that consumers who use his services tend to spoil themselves when they can pay in installments.

“We see them buying premium economy or even first class [tickets] when in general they wouldn’t have bought that…Consumers don’t buy the cheapest seats on the plane anymore,” he said.

“There have been layaway programs of different flavors in the travel space for a long time. But they were still based on the consumer having to make payment before travelling,” Botts said. “Some people don’t always understand that they don’t have to make all the payments before they travel.”

How it works

These companies operate in several ways.

Some, like Uplift, do a quick credit check on the traveler, which they use to determine interest rates and payment schedules. They’re actually short-term loans, which are decided “literally at the snap of a finger,” Botts said.

Botts said most Uplift partners offer 0% financing. “In many cases, there’s not even a cost to the consumer to go ahead and take a seven-day cruise and pay for it over time,” he said.

However, fares vary depending on the financial health of the traveler. Uplift’s annual percentages range from 0% to 36%, according to its website.

Asked about travelers likely to cancel their credit card before the loan is paid off, Botts said it “is called fraud and there are consequences.”

“By pulling credit reports, we are able to understand and ensure that the consumer has the financial means to reimburse us.”

Others, like a company called Pay Later Travel, work more like the classic layaway plan. There are no credit checks or financing requirements, but travelers must secure the flight with a deposit and pay the full fare before flying.

The company’s approval algorithm is able to understand the consumer’s ability to pay for large items and approve them accordingly.

Still others, like BNPL Splitit, authorize the full amount of the airfare on a traveler’s credit card, but split payments between three and 24 monthly installments. With each payment made, the company reduces the hold on the line of credit by the same amount, according to its website.

Australia’s largest airline, Qantas, launched BNPL services in May 2022, which allows international passengers on certain routes to book a flight but pay the fare later. However, the fare isn’t locked in — it can increase, along with tax and fee changes, according to the website.

Qantas also charges a fee to retain seats, which is refunded if the flight is purchased or cancelled, according to its website.

Not just airlines

The online travel agency Booking.com works with the company BNPL Zip, which allows travelers to pay for hotels, cruises, cars and travel experiences in installments.

“Flexible options are essential for travelers…especially with all the uncertainty of the past two years and the continued uncertainty we’re seeing globally,” said Laura Houldsworth, Booking.com’s managing director for the Asia Pacific.

Some companies require users to book through an app or their own websites. But others are available directly through websites operated by airlines or businesses, such as Booking.com.

D3sign | time | Getty Images

Fewer BNPL loans approved

Most BNPL companies operate by issuing loans.

However, with high inflation and rising interest rates, “fewer and fewer loans”, especially for large amounts, are being approved, said Nandan Sheth, CEO of Splitit.

Uplift’s Botts told CNBC he disagreed.

“The company’s approval algorithm is able to understand the consumer’s ability to pay for large items and approve them accordingly,” he said. “We have a duty to be a responsible lender and we have to make sure consumers can repay the loans we offer.”

Splitit does not provide loans or check travelers’ credit scores, Sheth said. All customers need is enough available credit on their credit cards to cover the cost of the purchase, according to the website.

“We don’t harvest consumer purchase history data…we don’t turn the consumer away, and we don’t resell alternative offers to consumers,” he said.

But Botts said credit cards are a “terrible way” to finance airline tickets, given the compound interest nature of credit cards.

Also, it’s unclear if the consumer can actually afford the loan, he said.

“It just transfers the risk of reimbursement to the credit card companies. It’s a very bad spiral for consumers,” Botts added.

– CNBC’s Monica Pitrelli contributed to this report.

We wish to say thanks to the writer of this short article for this awesome web content

Want to book a flight but pay for it next year? Here’s How It Works – Up News Info