As travel is expected to increase this holiday season compared to last year, more consumers are using buy now, pay later (BNPL) services to pay for expenses like hotels and airline tickets. But while BNPL apps can help your cash flow and save you on interest that credit cards charge, they also have downsides to consider.

Buy now, pay later services allow you to make a purchase and then pay it back in several installments over time, as you would use a credit card. The main benefit over credit cards is that there are no interest rate charges or fees if you pay according to the terms.

Consumers are turning to BNPL apps for a number of expenses, including holiday gift buying as they took advantage of retail discounts on Black Friday and Cyber Monday. The majority of purchases made with BNPL have been apparel and personal effects like electronics and jewelry, but travel and entertainment are among the fastest growing segments, according to the Consumer Financial Protection Bureau (CFPB).

From Dec. 23, 2022 to Jan. 2, AAA estimates that 112.7 million people will travel 50 miles or more, up 3.6 million from the year prior. It expects air travel increase 14% increase with 7.2 million Americans expected to fly.

Companies like American Airlines and United Airlines have partnered with BNPL providers like Affirm and Uplift to allow you to pay for your vacations and travel in small increments, which can often result in you paying for your trip after you’ve returned home.

Advantages of Using BNPL

For consumers with increasingly tight budgets, due in part to inflation trends and rising interest rates, BNPL apps make it possible to make a purchase and pay it off over time with no interest. If BNPL payments fit into your budget, this strategy can help you maintain a healthy cash flow, ensuring you have more cash on hand to pay for other expenses.

BNPL apps are becoming more advantageous over using credit cards as credit card interest rates rise. Most credit card companies tie their interest rate to the Federal Reserve’s prime rate, which has been increasing as the Fed tries to stem inflation trends. Most recently, the Fed raised its key interest rate by half a percentage point to a range of 4.25% to 4.5%.

Downsides of Relying on BNPL

If used with careful planning for your budget, BNPL services can be a helpful financial tool to allow you make purchases and maintain your cash flow. But they can also cause financial hardship if they’re not used correctly.

If you don’t make your payments on time, a BNPL service can charge late fees. In fact, late fees are becoming more common. About 10.5% of BNPL users were charged a late fee in 2021, up from 7.8% in 2020, the CFPB reports.

Consumer protections for BNPL services are also inconsistent. Unlike with credit cards, BNPL services are not regulated in every state. So they may, for example, fail to provide clear cost-of-credit disclosures. BNPL users can be forced into autopay or have few rights to dispute charges. Without consumer protections, BNPL services can charge multiple late fees on the same missed payment. The CFPB says it’s working toward improving regulations on BNPL companies.

“Given their rapid growth, we want to ensure that the buy now, pay later companies are subjected to appropriate supervisory examinations, just as credit card companies are,” CFBP director Rohit Chopra said in a statement.