Should you use Fly Now Pay Later and Butter to pay for your next holiday?

'Buy now, pay later' (BNPL)schemes are becoming more common at the online checkout. But are they a sensible way to pay for your next holiday?

With the UK's ban on overseas travel now lifted, many Britons will be considering a trip to one of the government's 'green list' destinations, such as Portugal, Gibraltar or Iceland.

In recent years, new BNPL payment options such as Klarna have sprung up with travel firms, allowing holidaymakers to spread the cost of their flights and hotel. And now there are two new firms, Fly Now Pay Later and Butter which offer to split the cost of your next trip.

Here, Which? takes a closer look at the new crop of BNPL options for purchasing a holiday and what you should know before using them.

Have you ever had an issue with a BNPL scheme? Tell us about it using our new BNPL complaints form.

What are Butter and Fly Now Pay Later?

Butter describes itself as a BNPL travel agency. You book flights and hotels through its website or app, pay a deposit and then pay the rest back over time.

Fly Now Pay Later is another BNPL firm. However, unlike Butter, you can find Fly Now Pay Later integrated as a payment option at the checkouts of travel companies such as Lastminute.com, Flymble, TravelUp and Carlton Leisure.

• Find out more: should you use Klarna to pay for flights and hotels?

How do they work?

Butter allows you to spread the cost of a trip over 10 monthly instalments without interest. There's no minimum spend but the maximum is capped at £3,000.

Meanwhile, Fly Now Pay Later lets you borrow between £100 and £3,000 to book a trip, over 30 days up to 12 months. Borrowing for a shorter period is interest-free but spreading the cost over a longer period will attract a transaction fee or interest.

Here's what we were offered on a £600 trip to Portugal on Lastminute.com.

On its website, Fly Now Pay Later gives an example where an £800 loan over 10 months incurs a £136 transaction fee. This makes the total cost of borrowing £936 and gives a representative APR of 51.8%. By comparison, a credit card typically charges 23% APR.

Both firms perform a credit check beforehand to check your eligibility for financing.

• Find out more:how to use BNPL safely

What happens if you miss a payment?

If you miss a payment with either Butter or Fly Now Pay Later, you're charged £12.

Missed payments or failure to pay back can also be noted on your credit report and the mark can stay there for six years.

If you continually miss payments or fail to pay, the firms could take stronger action to recover the debt, like selling it on to another firm. Make sure you read the terms of your credit agreement to know what the consequences are.

If you think you could miss a payment, let the provider know as soon as possible.

• Find out more:how to pay off BNPL debts

How do refunds work?

To get a refund from Butter, you should contact them directly. You should receive the refund at the same time Butter receives it from the airline or hotel.

On its Customer Support page, Fly Now Pay Later states that refunds can take six to eight weeks to be processed. Until that happens, you'll still be required to make the monthly payments.

The involvement of an intermediary like a BNPL company can add an extra layer of complication to refunds.We've previously heard from customers who were left waiting for refunds after returning items purchased with a BNPL scheme.

• Find out more: BNPL returns - know your rights

What help is there if things go wrong?

If you are booking a packaged holiday you should check it is covered by the Atol scheme.

When you buy an Atol protected holiday you should get an Atol certificate. An Atol certificate will list what is financially protected if a company involved with your holiday goes bust.

With Butter, you'll get an Atol certificate from Butter or the supplier except where you book a low-cost airline such as Ryanair, EasyJet, TUI, Norwegian or Jet2.

If you are booking just a flight or hotel it's not guaranteed that you will get Atol protection so you should check the terms and conditions of the BNPL schemes to check their policy if a retailer goes bust.

A travel insurance policy can help protect your holiday in certain situations, so it's important to take one out before your trip. However, at the moment there is no policy that will completely protect you against disruption caused by Covid-19.

One of the benefits of booking with a regulated credit product is that you get Section 75 protection on purchases worth between £100 and £30,000.

Under Section 75 of the Consumer Credit Act 1974, the credit company is jointly and severally liable for any breach of contract or misrepresentation by the retailer or trader. This means you can put in a claim to your credit provider if an airline or hotel firm goes under.

Both Butter and Fly Now Pay Later are regulated by the Financial Conduct Authority (FCA) and offer regulated credit.

Butter told Which? that flights and hotels booked on its platform are protected by Section 75.

We reached out to Fly Now Pay Later to ask if they also offer Section 75 protection, but it didn't respond.

• Find out more:how do I know whether my holiday is Atol protected?

The risks of using BNPL for a holiday

One of the risks of BNPL schemes is they can encourage you to overspend. When we surveyed 2,000 members of the general public in October 2020, 24% of BNPL users told us they spent more than they planned to because BNPL was available at the checkout.

Butter and Fly Now Pay Later will perform a credit check to ensure you can afford the amount you wish to borrow, which should help curtail extreme overspending. But to avoid falling into debt you should make sure you can cover all the costs associated with a holiday including the flight, accommodation, transfers, airport parking, and spending money.

It's worth bearing in mind that since some BNPL providers take payments automatically from your card or via a Direct Debit, you are at risk of having less control if your financial situation changes and you need to prioritise other payments such as rent or council tax. That said, Butter and Fly Now Pay Later will allow you to change your method of payment so you could choose a different card to pay if things get tight with the original account you wanted to use to pay.

With so many options at the checkout it's important you get to grips with the terms and conditions of a BNPL firm before using it to spread the cost of your holiday. Make sure you are happy with how the repayments will be taken, how you can track repayments, and what protections are in place if anything goes wrong.

Get in touch with Which?

If you have used a BNPL scheme and struggled to make the repayments or get a refund, we want to hear from you. Get in touch with us at yourstory@which.co.uk.

This story has been updated since it was first published. It was updated on 20 May to clarify the refund process and Section 75 protection Butter offers and to remove implication that Butter and Fly Now Pay Later operate in the same way.