Happily, a shortage of cash on hand doesn’t have to stir up an incurable case of FOMO these days, thanks to a crop of newish companies that have started offering up third-party travel financing over the past few years, including Uplift, Affirm, and FOMO Travel, among others. Basically, think of it as a sort of layaway plan: You purchase your trip today and then pay for it over a set period of time in installments (though with interest and/or applicable fees). Here’s the 101 on third-party travel financing to help navigate the ins and outs of this burgeoning industry and to figure out if it’s the right fit for you.
What’s the advantage of funding a trip with third-party financing?
The big thinking behind the idea is simple: Make travel more affordable and accessible. By giving consumers the option to break up the cost of a purchase over several months or a year, financing offers a way for travelers to comfortably afford a trip that might otherwise be outside of immediate financial reach.
“People may be taking advantage of a holiday to see family, or have a family vacation when the timing is right, even if they haven’t saved in advance. Some of our customers are traveling last minute to visit a sick relative, or to attend an important event like a wedding,” says Rob Soderberry, president of Uplift, an industry leader that expects to do $1 billion in financing this year. “Paying monthly allows our partners’ travel consumers to lock in trips before costs rise and enables them to afford more rewarding travel options for those once-in-a-lifetime experiences,” he adds.
Compared to booking a trip on a credit card, the interest rates on these financing packages are sometimes more competitive; in fact, FOMO Travel doesn’t charge interest at all (instead, it relies on a flat fee), and Affirm occasionally offers zero percent interest rates. And because you have a fixed time period to pay it off, the debt won’t stick around indefinitely, as can happen with credit card purchases.
Third-party financing companies work with travel providers like United Vacations, Norwegian Cruise Line, and Expedia, so that you can book your trip now, and pay for it later.
Can I travel anywhere and with any airline, hotel, or cruise that I choose?
Third-party financing companies work with a variety of travel providers with whom they have sometimes negotiated exclusive arrangements. Travel partners for Uplift, for example, include companies like Southwest Vacations, United Vacations, and Norwegian Cruise Line, while Affirm partners with Expedia, CheapAir.com, and Suiteness, among others; in these cases, the financing can be secured via the travel partner’s website.
However, applicants interested in custom-tailoring their own vacation plans through independent arrangements can also apply for financing directly through the loan provider’s own website (excluding FOMO Travel, which exclusively books travel through its contracted partners). Once approved, the credited loan amount can be used to pay for travel with any airline, cruise line, or hotel that the recipient desires.
How do I apply for a loan?
Each financing company differs with its procedures. Uplift’s application process is automated and integrated into its travel partners’ websites (or on its own website), where they collect applicant info to review and render a real-time decision for financing approval. Affirm likewise collects applicants’ data online to make a near-instantaneous underwriting decision. If approved, the shopper can then select his or her preferred repayment term, which generally must be made within three, six, or 12 months (longer terms are available with select merchants).
At FOMO Travel, which works more like store-style layaway than a traditional bank loan since it doesn’t charge interest, there are no credit checks and everybody who applies is approved. CEO and founder Andrew Katzwinkel explains, “There is zero friction or waiting period when activating a payment plan.”
What factors help determine who qualifies?
Many providers, like Uplift, use credit history data to ensure the borrower has the ability to repay. Importantly, though, “Checking your rate does not impact your credit score—there is no hard credit pull unless you accept an offer,” says Soderberry.
“We want to ensure we’re only approving someone for what we believe they can comfortably afford and, unfortunately, that means sometimes we have to tell someone no if this isn’t the case,” adds Rustom Birdie, who leads the travel sector at Affirm, which also uses credit history data for loan determinations.
For FOMO Travel, however, the only major factor for qualification is an agreement that the vacation be paid in full at least 30 days prior to departure. “If the package is not paid for in full, we do not issue the travel documents and the client cannot travel,” says Katzwinkel. However, FOMO does allow clients to make fee-free amendments to their travel dates if they aren’t going to be able to make their final payment in time.
You can take a loan to travel anywhere in the world (Jordan, anyone?)—but be mindful of potential pitfalls, like steep interest rates.
What type of interest rate and payment terms are in place for these loans?
Depending on the trip type, Uplift, for one, extends financing from $200 to $15,000 with repayment terms of three, six, or 11 months (which can be repaid in the months both before and after the trip), and rates ranging from 9 percent to 35.99 percent. All fees and costs for the loan are included in the upfront annual percentage rate (APR) disclosures and in the quoted interest rate; Uplift does not charge late fees or prepayment fees.
Affirm’s interest rates range from zero to 30 percent, and recipients can choose a repayment term of three, six, of 12 months; with Affirm, travel may also be completed before full repayment is made. “We don’t have hidden or late fees, which differs greatly from the experience other lenders provide, which typically involves origination and/or late fees,” says Birdie.
FOMO’s model is different: It charges a 2.5 percent transaction fee on the total value of the package, to process and manage the layaway payments, which must be paid 30 days in advance of the booked trip. “We do not charge a booking fee or charge interest onto the client,” notes Katzwinkel. However, if the client cancels a trip within 12 weeks of travel, the client will be refunded, though minus the initial deposit.
This sounds like a good idea, but what do I need to keep in mind?
“Like any loan, make sure you can take on additional debt. Be clear about the interest rates as they can be as high as 36 percent; while that may not seem like much on a small loan, if your trip is for thousands of dollars that adds up,” says Lauren Saunders, associate director of the National Consumer Law Center.
It’s never a good idea to go into high-interest debt for nonessential trips, cautions Sara Rathner, NerdWallet’s travel expert. Instead, she advises that you look into obtaining credit cards that offer long zero percent intro APR periods, but only if you can pay your trip off in full before the zero interest period ends.
Lastly, Leslie Tayne, a debt resolution attorney with the New York–based Tayne Law Group, advises forgoing financing altogether by including vacation savings in your monthly budget. Then find the best deals in other ways. “Travel at less-popular times, go to off-the-beaten path destinations, find discounts through reputation organizations, and use reward card points and travel miles; put the travel on your rewards card, but pay it off ASAP.”
No doubt, the rise of third-party travel financing will allow many more people to indulge their adventurous spirit. But, like all financial products, know what you’re getting into first, so that you can be sure it’s the right solution for you.
