Travel to change with the apps Buy now Pay later
A host of new “buy now, pay later” applications have the potential to change the way we travel.
Buy now Pay later
A number of new “Buy Now, Pay Later” apps have entered the market over the past two years, but they are now reaching their full stride. Klarna is the one who used a Super Bowl commercial to introduce new customers to the market, Affirm is another. AfterPay, an Australian company, was just purchased as the largest transaction in the country’s history when Square offered $ 29 billion to be integrated into the company’s Cash application.
I will be focusing primarily on Affirm for the purposes of this article.
The main benefit of Affirm buy now, pay later: no credit checks. This also applies to competition as well as transparency about what will be billed, when and where. More and more fintech companies are dodging the traditional credit score in favor of a soft pull to verify identity, then intersect that with limited data to determine financial capacity to repay.
It is ideal for those with good and bad credit. The Klarna app, and others like it, offers interest-free payment plans for the purchase amount in installments. Depending on the consumer’s creditworthiness, the amount offered and the repayment period will vary, but generally 6 to 12 weeks are standard free windows, although this also varies by retailer.
Interest rates apply for longer loan terms ranging from 0-30%, although most people I’ve seen offer interest-free monthly payments of 3-6 months, and 9-12 months. month, the interest rate applies. It’s not a revolving line of credit, it’s a one-transaction micro-loan that earns its client’s trust by avoiding hidden fees and keeping spending limits manageable.
My limit was lower than any credit card I have ever applied for, so its ease of use for me is quite limited. However, for purchases that I don’t want to do but need to do, this could be a good alternative.
How it works?
These apps work on both sides of the transaction. They receive both a commission from the retailer and consumer interest when they choose to fund beyond the free installments. An app like Affirm will pay for purchases according to the terms established with the retailer (60-90 days – just a guess) While the consumer makes payments to the lender, those that extend beyond the payment terms that the app has with the retailer incur interest.
Some retailers looking to promote larger purchases will offer longer terms without interest or lower rates. Interest, when charged, is a fixed rate, not compounded.
With a more direct payment history and as loan installments are withdrawn from a checking account, the app may be able to make smarter borrower-by-borrower lending decisions without requiring the use of a loan officer. .
Participating travel companies
In theory, travel agencies are ideal for this type of application. These are bigger items that consumers can wait to buy until they are ready to pay all at once, but the prices change and the sale can be lost. For many consumers, it’s much easier to absorb payments than bulk purchases, and credit cards only give 30 days to avoid high interest rates.
Here are some of the travel agencies participating in Affirm (although the list is not necessarily complete):
- United Airlines
- Delta Vacations
- American Airlines
- Frontier airlines
- Hot wire
- Southwest Airlines
- Price line
- VR Sharing
- Cheap air
There is also an option to use a virtual credit card (using your available credit) to purchase from a retailer not listed in the system.
One of the advantages that travel agents have long had over direct-to-consumer online sales is the ability to offer payments for travel over time. A deposit is taken at the time of booking and then easy monthly payments allow consumers who would be hard pressed to save $ 2,000 for the cruise they really want, but at $ 200 up front and $ 150 per month, c is something they can easily afford.
It can really change travel by opening the doors to new consumers. It also allows you to spend a little more money on reservations. Southwest has succeeded not in competing with the big airlines, but in driving. Essentially, they were attracting new consumers instead of trying to take market share from the existing market. It’s like that.
Competition from banks
American Express offers several options for installment repayment terms: Plan It and Pay Over Time. Plan It most closely resembles these systems by setting up fixed payments at the time of purchase, but Plan It will have a rating based fee ranging from 0 to 30%. I was recently offered 10%, in the past I have seen it as low as 0% and 4-7%.
Chase also offers a fixed payment over time option for certain credit customers with no charge or interest (assuming payments are made on time and in full as due) but this is a limited offer and will not stay in place. for a lasting period of time.
Every month my house receives checks from credit cards that we don’t use offering 0-3% balance transfer or fixed payment offers and 12-18 month terms. We sometimes go to the banks because the line of credit is already established, and for zero or very little interest, I always prefer to keep my money on hand.
What I don’t like about these chords are the words “catch”. If it’s not fully repaid within the time frame, it incurs a maximum interest rate for the entire period (for which I would have been better off loading it onto my card and repaying at normal interest rates.) This also disables this card for me as I don’t want to do the monthly calculation to make sure my down payment amount and normal charges are paid without paying the balance of the prepaid amount.
The problem for new consumers, for whom travelers are among the most often targeted, is that they don’t want their credit affected and even those small balance transfers will affect your credit score as usage increases. Installment loans are viewed differently and Affirm and others will report the payments to the offices. This helps new credit applicants build credit, but without needing hard credit to establish it in the first place.
Will I use it?
If the expenses are significant, this can be a good alternative. As I mentioned, I always prefer to keep money and fund for free if possible. I’ll try it out on a few small purchases to see how it works and if it’s a good fit for me and my family. I know others who will already use it for their travel purchases, and it makes possible trips that would otherwise have gone out of reach.
What do you think? Have you tried these apps? Are you going to consider them or use your own funding instead?