Should you opt for travel now, pay later schemes this holiday season?

Cleartrip, a travel booking portal, is all set to launch its “travel now, pay later” feature by the end of this week.

“We are going to launch it for a limited user base as of now, and then gradually plan to scale it up,” says Prahlad Krishnamurthi, chief business officer, Cleartrip. “The applicant's credit worthiness and the customer base with which we initiate our launch, will be evaluated by the fintechs we have partnered with.”

As the name suggests, travel now pay later (TNPL) is about making dream travel possible by availing a quick loan. It is the travel version of buy now, pay later (BNPL) schemes that customers have grown accustomed to in retail .

TNPL is essentially a loan or credit that you take out when booking or taking a trip and pay for it in installments. You can either pay partially or not at all while booking, and do so later within a specified duration. You can avail of no-cost EMIs or pay an interest rate on the borrowed amount, depending on the quantum of funds borrowed and the duration for which you are taking the loan.

Consumers switching to Buy Now, Pay Later?

Indian consumers are spoilt for choice when it comes to putting off paying for their purchases. As if credit cards and equal equated installments weren’t enough, over the last three years, many fintech firms have come up with the BNPL feature. The onset of the COVID-19 pandemic in 2020 further nudged many consumers to switch to BNPL schemes.

According to a report by GlobalData, a data analysis firm, the transaction value of BNPL services is estimated to increase at a compound annual growth rate (CAGR) of 32.5 percent between 2022 and 2026 to reach INR1.1 trillion ($15 billion) in four years.

'Buy Now, Pay Later' for millennials

According to a ZestMoney report on Indian consumers opting for BNPL solutions in 2020, the average age of consumers who opt for BNPL is 34 years. As per its 2020 report, consumers who availed this facility, typically spend on online education, purchasing of high-end smartphones, electronic appliances, fashion and travel.

Shivani Gupta, senior banking and payments analyst at GlobalData, says: “BNPL, which is already very popular in Australia and many European markets, is gradually gaining traction in India, especially among millennials. It provides consumers with the flexibility to pay for purchases at later dates with no-interest, making it a lucrative payment tool, particularly for those who do not own credit cards. Further, with pandemic adversely affecting consumers’ disposable income, the demand for short-term consumer financing solutions has increased in the past couple of years.”

“Even though the target market for these providers are millennials, these early earners should not give into impulse spending, and rather still plan their finances well,” says Kalpesh Ashar, a SEBI-registered investment adviser.

How does BNPL work?

To put it simply, the buy-now-pay-later scheme allows you to buy something now and then stagger your payments.

A most basic form of BNPL is when you run a book with a fintech firm. Once you enroll with the firm, it allows you to buy products from any of its partner merchants (online stores) within a certain time period, say 15-30 days and then allows you to settle all your bills at the end of the cycle.

If you delay your payments beyond this cycle, then it levies an interest cost, depending on your bill amount. Some BNPL firms also allow you to convert your high-cost purchases into no-cost credit for three to six months.

Some of the fintech firms in this segment are Amazon Pay, ePayLater, Kissht, LazyPay, Simpl, Slice, ZestMoney, etc. The BNPL is also an option that’s available with e-commerce websites like Flipkart, Amazon, BigBasket, and so on, and also on food delivery mobile applications like Zomato and Swiggy, and even in trip booking portals such as Goibibo and Cleartrip.

How do the BNPL charges work?

BNPL works as an alternative to your credit cards. For instance, if you make purchases from within the Simpl app (through its 2,500 plus merchants), your bill gets generated every 15 days. If you fail to clear your bill by the due date, a late penalty of up to Rs 250 plus GST is levied.

These charges might appear small, but experts like Ashar says that if unchecked, they can balloon into something big and unmanageable.

Failure to repay your bills can not just lead to incurring charges as mentioned earlier, it can also lead to a negative impact on your credit score. This is because, by not paying your bills on time, you display an inability to pay back what you owe, and this can reduce your credit score. This can lead to difficulties in getting loan approvals in the future.

“There are no free lunches and anything that gives you instant gratification in the financial world is not healthy,” adds Ashar.

So should you use TNPL?

The digital travel purchase pattern in India has transformed drastically since September 2020. A substantial number of people consume such services online these days. However, when they do not have enough cash in hand, they prefer routes like pay later or save now and travel later. Both these services are rapidly picking up pace in India.

As with most payment methods, it’s important to consider the pros and cons before deciding. If you find that a buy/travel now, pay later service is right for you, then you will be able to save money while delaying payment for an item over a certain period of time.

There are many buy now pay later options available, so you can shop around to find the best one for your needs. BNPL can be a great option for those who have a long time before they have to make a large purchase, are saving up for a big purchase, or have a specific item on their wish list that they’d like to purchase but cannot finance immediately.

Having said that, do read the fine print to look for hidden charges and/or conditions that could trigger higher interest rate or penalties.