Denise Phillips, a military veteran and mom who has three sons in the service, wanted to book a trip to Hawaii to spend Thanksgiving with one of her children.
But she didn’t want to pay for the trip all at once. So she started searching online for installment plans and found one through the lending company Affirm.
“I started looking into it, and it said ‘No hidden fees,’” she said. “I tried it, and it was actually true.”
The experience was convenient, she said, and since that trip she’s used Affirm to book more trips: One for a fishing trip to Alaska next month and she has plans to use it in January for a trip to Bermuda.
Affirm charges interest, but presents that total as a flat fee at the beginning of the payment process, which was more comforting than putting the big purchases on a credit card, she said.
The fee varies depending on the customer’s creditworthiness and the time period during which they plan to pay.
Phillips isn’t alone. In recent years, companies have increasingly allowed travelers to book airfare, hotels and amusement-park tickets, with the promise they’ll pay later.
The airline JetBlue JBLU, +0.88%[1] announced in 2017 a partnership[2] with the payments company UpLift, that allows customers to pay for flights in 12 monthly installments, with APRs starting at 8.99%.
Similar companies, including Airfordable and BookIt.com’s PayDelay, specialize in travel installment loans.
And lenders that typically offer personal loans, including Affirm and Marcus by Goldman Sachs, also advertise “travel”[3] or “vacation” loans[4].
Taking out a loan for a vacation is risky
But financial experts say taking out a loan for a vacation can be a bad idea. If someone absolutely has to book a trip, there might even be cheaper ways to do it, said Nick Clements, the co-founder of personal finance company MagnifyMoney.
One possibility: Credit cards with a 0% interest-rate introductory period, he said. That is, of course, if consumers can pay the full amount they put on the card before the introductory period is over.
What’s more, not all installment plans work out as well as they did for Denise Phillips, said Rachel Podnos, an attorney and financial adviser based in Washington, D.C.
Interest rates advertised as “low” still cost consumers more than they should be paying on a discretionary purchase like a vacation, she said.
At Affirm, the interest rate can be up to 30% — significantly higher than on a credit card, which has an average interest rate of 17%[5], according to personal-finance website Bankrate. Although there is a key difference: Affirm gives the total amount people will pay up front, and charges...