March 17, 2009
Have card, will travel
More Singaporeans are opting for travel now, pay later schemes when they holiday overseas
By cheryl tan
Singaporeans are travelling on credit in these belt-tightening times.
Travel now, pay later schemes have been around since 2001 but the number of customers who opt to pay for their travel packages in interest-free instalments has spiked over the past year, said travel agents.
This is how the credit scheme works: Tour agencies team up with major banks to offer the instalment payment plans. The banks pay the travel agencies the full amount of the tour packages and collect from travellers in monthly instalments.
Customers can spread the repayments over six or 12 months. They also have to make a non-refundable deposit of between $300 and $500 a passenger, depending on the price of the tour package.
CTC Holidays, one of the biggest travel agents here, saw a 60 per cent spike in such sales transactions from $17.5 million in 2007 to $28 million last year.
Its spokesman Alicia Seah said travel now, pay later customers usually sign up for packages that range from $1,500 to $3,000. Popular destinations include Japan, Europe and the United States. The agency tied up with OCBC, UOB and DBS to offer this scheme in 2001.
She said that sales are expected to grow this year because consumers prefer to have cash in hand during a recession and pay for big ticket items in instalments.
That is why HR executive Yueh Soek Fang opted for a six-month instalment plan to pay off her $3,200 nine-day Hokkaido trip for two people although she had the money in her bank account.
The 32-year-old who travelled with her twin sister said: 'I just prefer to keep the money with me first. The repayment is not so painful and I can earn points on credit too.'
She pointed out that such schemes are 'good for low-income earners' who have to save every month for a holiday.
'You have to wait at least one to two years before you can go on one holiday,' she said.
SA Tours spokesman Ruth Lim said its customers are usually people below 45 years old who 'either have a lower income or have other financial commitments'.
The tour agency started the scheme in 2004 and last year, saw an 18 per cent increase in the number of clients signing up for such instalment packages compared to 2007.
Chan Brothers, another big travel agency in Singapore, said the number of customers paying by interest-free instalment doubled last year.
Spokesman Jane Chang also said that younger travellers are more likely to take up the instalment plans. The agency started offering the package with Citibank, DBS and UOB eight years ago.
Diners Club International assistant general manager Bernard Tay said travelling on credit is attractive because it allows for instant gratification of the travel bug without the pain of shelling out a big amount upfront.
'Consumers no longer want to save five years for a US trip. They want everything now,' he said.
The credit-card company has a travel arm, Diners World Travel. He said that the travel industry was the second biggest contributor to sales instalment revenue after the electronics industry.
As UOB Travel spokesman Eileen Oh put it: 'Travel has become an essential for Singaporeans and they will try all ways and means to take a break overseas.'
The agency has seen at least a 30 per cent increase from 2007 to last year in the take-up rate of such plans.
To ride on the popularity of the instalment schemes, it plans to introduce a three-month instalment waiver on holiday packages at its roadshow at CityLink Mall this weekend.
OCBC Bank rolled out OCBC Paylite last year so that its credit-card members can pay for their holiday packages at any travel agency over three-, six- or 12-month periods.
'Payment in instalments ensures better cash-flow management in case funds are needed elsewhere,'' said OCBC Bank head of credit cards Alice Goh.
Asked about the enjoy now, pay later mentality of travellers, Credit Counselling assistant director Tan Huey Min advised those who signed up for the schemes to budget for their holidays.
She pointed out that paying small amounts over a period of time 'allows money in the bank to earn interest'.
Diners Club International's Mr Tay said fewer than 1 per cent of its customers default on payments. The banks contacted did not give default rates.
The banks said that customers who do not settle the monthly payments will be charged the usual interest rate for credit cards, usually 24 per cent per annum or 2 per cent a month.
Engineer Chia Puay Hua used to pay for his tour packages in full but changed his mind when his ASA Holiday travel agent recommended its zero-interest instalment payment plan to him in January.
He had booked a nine-day Hokkaido-Tokyo tour with his wife for $5,800.
He plonked down $1,000 as a cash deposit and will pay off the rest of his holiday over six months.
The 33-year-old said: 'It's good to have as much cash as possible on standby during these times.'
How it works
This is how the travel now, pay later scheme works:
An upfront deposit must be made.
§ Travel packages worth less than $1,000 a person: $300 deposit
§ Travel packages worth more than $1,000 a person: $500 deposit
Depending on the credit card you use, the instalments can be spread over three-, six- or 12-month payment periods. The instalments are interest-free so long as you pay the full amount every month. Late payments attract a 24 per cent annual interest rate.
*Guidelines may vary according to travel agencies and instalment plans are subject to bank approval.
Credit Counselling Singapore advises:
§ Postpone your trip or choose a cheaper tour if you cannot afford an expensive holiday.
§ Set aside a travel fund that you contribute to every month and spend within those means.
§ Do your sums before you sign on the dotted line. If you have other outstanding monthly instalment plans, they can add up to a substantial amount