Lay-by travel

A new travel site allows you to pay for the holiday of your dreams without going into debt.

lay-by travelLast year I took issue with a new travel company that offered customers the ‘opportunity’ to borrow money to fund the holiday of their dreams. I argued that the product that was really needed was one where people were encouraged to save for their holidays and able to go on their dream vacation knowing it was fully paid.

Andrew Katzwinkel, founder of Fomo Travel has delivered just that. In developing an alternative way to pay for your holiday that involves no interest payments and no debt obligations, 29-year-old Katzwinkel was motivated to find a solution for him and his friends who wanted to travel but did not want to end up with uncontrollable credit card debt.

In a nutshell, Fomo Travel works on the lay-by concept. You choose your holiday, pay your installments and only once the holiday is fully paid do you travel.

As most people plan their holidays months, if not up to two years in advance, Katzwinkel says it naturally lends itself to paying it off in advance. Through the website you are able to select the holiday package of your dreams and the length of time before you travel which allows you to budget carefully as to how much you can afford to pay towards the holiday each month. An added feature is that you can ask friends and family to add to your holiday fund as a birthday or wedding gift, for example.

You pay an initial deposit to secure the booking which sets the price for the holiday irrespective of future price changes. This can be particularly beneficial if you are travelling overseas and worried about Rand valuations. The deposit is paid straight to the travel operator and is not refundable, however, your monthly payments towards the holiday are fully refundable if you cancel the trip 12 weeks prior to travel.

Currently Fomo Travel offers both local and international holiday destinations through various holiday operators and Katzwinkel says they will soon be launching adventure holiday packages.

Package examples include the Maldives for R2 717 per month paid over eight months (flights not included) or locally, a Sun City holiday for R886 per month paid over four months.

A lay-by holiday plan is a great way to go on holiday and be debt free so that you come back with memories and not credit card bills.

How it works

You choose and book your holiday according to your budget and repayment plan. Fomo Travel has partnership agreements with several large holiday package operators and you can also create your own holiday package. At this stage most packages offered do not include airfare as Katwinkel says he found most people prefer to book their flights separately as they can use travel miles or rewards programmes towards these flights. However, the company is in the process of negotiating preferred-partner rates with airlines.

You pay the initial deposit to secure the booking. This is paid directly to the package provider and is not retained by Fomo Travel. The deposit varies depending on the travel operator and type of holiday package. For example, Club Med takes a 10% deposit whilst Beachcomber takes a 30% deposit. Katzwinkel says if flights are involved the deposit tends to be higher as airlines require full payment to secure the booking

You set up a flexible recurring payment: This is paid directly into a Standard Bank Trust account and held there until the full payment is due to the operator. If you cannot make a payment one month due to unexpected expenses, then the repayment is recalculated and spread over the rest of your repayment term. Again this is an advantage over paying off your holiday on a credit card where a missed payment means penalties and additional interest.

Payment plan ends 45 days before you travel: Your monthly contributions are calculated so that you have paid for the holiday in full 45 days before you travel. At this point the money is transferred from the Standard Bank Trust account to the travel operator. If you cancel 12 weeks before you travel, you get back all of your contributions (except for the initial deposit). If you cancel a month or less before, you forfeit the amount in total, however, as such a cancellation would usually only be in the case of an emergency, your travel insurance should have you covered. At eight weeks prior to travel you forfeit 25% of your contributions, and at six weeks you forfeit 50%.

The cost: Apart from the cost of the holiday, you pay a monthly administration fee of 2.5%. Katzwinkel says that the bulk of this goes to the bank to cover bank charges for the payment gateway but that Fomo Travel receives a 0.3% fee. This means that the actual cost of paying off your holiday on a lay-by system is 2.5% compared to the 20% or more that you would be paying in interest to the bank in addition to credit service fees. Interest earned in the Trust account is also retained by Fomo Travel to cover administration costs. Fomo Travel makes its money from referral commission paid by the travel operators.

This article first appeared in City Press.