Dubai: Experts in the travel and tourism sectors have warned against dealing with travel instalment offers, especially products marketed under the slogan ‘zero interest’, as cost-free options, noting an increase in travel instalment products in the local market similar to other retail sectors.
They emphasised the importance of calculating fees and future financial obligations before making a booking decision, noting that understanding the true cost of instalments involves more than just knowing if there are advertised interest rates. It also includes processing, delay, and rescheduling fees, as well as cancellation, booking modification, and refund policies. They stated that making a sound financial decision begins with comparing the total amount due, not just focusing on the monthly payment or the ease of obtaining financing.
Instalment payments for expenses
Banking expert Amjad Nasr said that instalment payment services, whether through travel companies, instalment companies, or offers provided by some banks on credit cards, have become more widespread and attractive to consumers.
He added that although these services may offer payment flexibility, the abundance of offers and ease of access may lead some to make spending decisions without adequately considering the impact on their monthly budgets.
Nasr explained: “The main problem lies in the absence of sound financial planning and the lack of awareness of the importance of prioritising financial needs. When a person accumulates instalment obligations from multiple sources, he is cutting an increasing portion of his monthly income to pay off previous obligations.”
He continued: “The danger of this behaviour is particularly evident when a job is lost, retirement occurs, an employment contract expires, or any circumstance leads to an interruption of income. In these cases, a person may find themselves facing ongoing financial obligations without sufficient savings to cover their basic expenses during the period of unemployment.”
Nasr also stressed the importance of realising that instalment offers, which are marketed as having no interest or additional fees, are not necessarily without economic cost, as the service provider may benefit from fees collected from the merchant or service provider, or from commercial arrangements with financing entities. The bank may also benefit from transaction fees collected from the merchant when using the credit card. Therefore, the consumer should look at the actual cost and his future obligations and not at the phrase ‘interest-free instalment’ alone.
He said, “Instalment is a financial tool that can be used consciously, but it should not become a means of financing a lifestyle that exceeds one’s actual spending capacity.” He explained that instalment with a one-time administrative fee means that the customer spends using the credit card, then converts the amount into monthly instalments for a one-time administrative fee, which may be, for example, 1%, 2%, or 3%, depending on the offer and the bank’s terms. He continued, “There is promotional instalment without interest or fees. As for converting purchases into instalments with interest, the bank allows the amount due on the card to be converted into monthly instalments, with interest or a profit rate calculated on the instalment balance, according to the approved period and pricing. Here, the total cost depends on the interest rate, the method of calculating it, the repayment period, and any additional fees.”
Facilities and demand
For his part, Bader Ahli, CEO of Dubai World Travel, confirmed that instalment plans for travel bookings are gaining popularity in the local market, with the increasing spread of these facilities that allow travellers to book airline tickets and tourist accommodation, even though profit margins in the travel sector are lower, compared to other sectors, for the entities that provide financial facilities.
He added that the wide availability of these options reflects the importance of travel in the lives of residents, as it has become a lifestyle for a wide segment of society, and not just an exceptional activity limited to annual vacations, at a time when instalment plans allow the cost of the trip to be spread over a period of time.
He continued: “But this flexibility does not necessarily mean that booking in instalments is the least expensive option,” stressing the importance of reviewing the cancellation and modification conditions before completing the booking, and being aware of the potential fees and obligations resulting from changing or cancelling the trip date.
He explained: “The risks are more pronounced for people who do not plan their budgets in advance, or who make the decision to travel based solely on their ability to pay the monthly instalment, without taking into account the total cost of the trip and other obligations during the payment period.”
Ahli advised “treating instalments as a means of organising payments, not increasing purchasing power without limits, while comparing the total amount due, including any administrative fees, and ensuring the ability to pay instalments on time so that the travel experience does not turn into a financial burden that extends beyond the return,” noting that there are fees applied to some transactions without zero interest.
Zero interest
In the same context, banker Issa Abdulrahman Al Ali said: “Travel instalment products are spreading in the local market today as a result of the high demand for flexible payment solutions, but it is important to clarify that these products are not completely (zero interest) as they are sometimes marketed, as processing fees are often added starting from 1% and sometimes more depending on the instalment period, and in reality, they are similar to indirect interest.”
He added: “The customer must pay attention to several points before taking advantage of these offers, the most important of which are: knowing the total actual cost, comparing fees between banks, and making sure that there are no hidden fees such as late fees or rescheduling fees, in addition to reading the terms and conditions for canceling the trip or refunding the amounts.”
Regarding the reasons for the spread of these products, he mentioned that it is due to the desire of customers to reduce financial pressure when traveling, the high cost of trips, in addition to the great competition between banks and finance companies to provide attractive payment solutions targeting the youth and families category.
He continued: “In general, these products can be said to be useful for those who manage their financial obligations in a disciplined manner, but they may become a burden if used unconsciously or with multiple financial obligations on the customer.”
Four ways to pay for travel in instalments
A survey of travel instalment products in the local market showed the availability of multiple options that allow travellers to spread the cost of trips over instalments, including over four payments, converting the value of tickets into monthly instalments via credit cards, in addition to payment plans that extend for longer periods, and options that include some flight and accommodation bookings.
Published terms and conditions for travel offers state that fees may vary depending on the bank and payment period. For one of the offers related to travel bookings, the processing fee is 1% when paying in instalments over three months, 2% over six months, 3% over nine months, and 4% over 12 months, with a minimum transaction amount of AED1,000.
Instalments over four payments
Some payment services allow dividing the flight booking value into four or more equal instalments, according to the available plan. In one of the published options, the minimum transaction starts from AED400, and the benefit is limited to UAE citizens and residents, with administrative fees added to the total booking value. Completing the process also requires identity verification and passing special approval criteria.
Bank instalment plans over several months
Some banking offers allow you to split the cost of your flight ticket into monthly instalments. The minimum qualifying booking may start from AED1,000 in some plans, with payment options over three or six months. Eligibility is contingent upon having an eligible credit card and meeting the bank's requirements. You may need to convert the purchase to an instalment plan after booking. Fees vary depending on the card and the offer; some plans have no processing fees, while others charge a fixed fee or a percentage of the transaction value.
Instalment plans for flight and accommodation costs
Some payment options allow for integrated travel bookings, but there is no single rule that guarantees the acceptance of the flight ticket and hotel together in one plan. The conditions vary from one party to another, as this depends on the party through which the booking is made, the type of service, the value of the transaction, and the terms of the payment provider. Before confirming the booking, it should be checked whether the instalment includes the entire package or only part of it, whether the fees are calculated on the total booking, as well as the cancellation and refund conditions.
Longer monthly instalments
Some banks allow eligible credit card purchases to be converted into longer repayment plans. According to one published bank terms and conditions table, the minimum transaction amount can start from AED750, with repayment periods ranging from 12 to 48 months for standard plans, provided the transaction falls within the specified conversion period and meets the card's terms and conditions.