Fly now, pay later: Are travel loans a good deal?

Dreaming of a spring getaway with white-sand beaches and a cool drink in your hand?

A search for airline tickets can bring your dream down to earth, if the steep fares charged by many airlines outstrip your savings.

What if you could book your trip today and pay for it later — without maxing out your credit cards?

Major airlines in the US integrate buy-now-pay-later concepts into their online booking. Working with technology startups that provide the financing, they offer loans to travellers who would rather pay a fixed amount over time than dip into savings or use high-interest credit cards.

Financing a trip may be a reasonable option in a few situations — for trips that are important and have inflexible dates, for example, or for emergency travel. But if you don't know how you'll pay, borrowing isn't a good idea, experts say.

Loan or Layaway

"We are trying to help people take the trips of a lifetime," says Brian Barth, founder and CEO of UpLift, an American startup that gives travel loans through four major airlines' websites.

Travel lenders say they appeal to people with average credit scores who may not qualify for travel reward cards that require excellent credit. The loans also can make sense for people who are building credit and prefer the discipline of fixed payments over credit cards' revolving payments.

It's not just airlines offering financing for travellers. Travel deal sites such as CheapAir.com, Expedia and Groupon Getaways offer loans through Affirm, a San Francisco-based online lender. Airfordable and FlightLayaway.com offer layaway-style plans, in which you pay off your ticket in online installments before you fly. Other sites like STA Travel market financing to college students.

Some experts advise against going into debt for travel at all, whether you use travel loans or credit cards. "Taking out debt (to travel) is risky and can be harder to pay off in the long run," says Brett Snyder, president and founder of airline industry blog Cranky Flier.

The Cost of Convenience

Even when a travel loan might make sense, know how you'll pay it back, such as by carving money out of your budget or using a tax refund, Snyder says.

Before you choose a loan, understand all the costs, says Graciela Aponte-Diaz, director of California policy for the Center for Responsible Lending, a nonprofit advocacy group.

The typical UpLift customer borrows $500 to $2,500, says Barth, and the company charges annual percentage rates from 8.99 percent to 36 percent, based on your credit profile. If you borrow $1,500, for example, and pay it back over 12 months at 17 percent — UpLift's average rate for borrowers — you'll pay $137 per month and a total of $1,642.

Affirm charges 10 percent to 30 percent APR, and travellers borrow $1,400 on average, says spokesperson Elizabeth Allin. Airfordable charges a one-time service fee equal to about 13 percent of the ticket cost, according to a calculator on the website.

Lenders may also charge cancellation and modification fees if your plans change, or try to sell you travel insurance.

The Credit Effect

Both UpLift and Affirm say they perform soft credit checks — essentially a background check of your credit report, which won't hurt your score. If you are approved, the loan and your payment history will show up on your credit report. Paying on time can build your credit score; not paying will hurt it, and you may be charged late fees.

UpLift considers borrowers with average to low credit scores and looks at data beyond credit scores, such as the person's travel history with an airline, says Barth. The lender has approved people with scores as low as 475, he says.

Affirm — which targets those who are new to credit — says it may ask applicants for permission to scan checking account transactions to gauge financial behaviour. More than 70 percent of Affirm travellers have credit scores between 620 and 729, says Allin.

Alternatives to Travel Loans

Saving is the cheapest way to fund your dream getaway.

In some cases, charging the trip to your credit card and paying more than the minimum monthly payment may be cheaper than a travel loan with interest, as long as you pay it off within a fixed time frame, says Aponte-Diaz.

Still dreaming of that beach? Find an affordable version of it, says Snyder.

"You don't have to go to Bali. Go to Florida without putting yourself into debt," he says.