Last 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 FomoTravel, has delivered just that. In developing an alternative way to pay for your holiday, which involves no interest payments and no debt obligations, 29-year-old Katzwinkel was motivated to find a solution for himself and his friends who wanted to travel but did not want to end up with uncontrollable credit card debt.
In a nutshell, FomoTravel works on the lay-by concept. You chose your holiday, pay your instalments 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 that 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 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 FomoTravel 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 a Maldives package 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. FomoTravel 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 because Katzwinkel found most people prefer to book their flights separately as they can use travel miles or reward 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 FomoTravel. The deposit varies depending on the travel operator and type of holiday package. For example, Club Med takes a 10% deposit while Beachcomber takes a 30% deposit. Katzwinkel says that, 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.
The monthly instalments are paid directly into a Standard Bank trust account and held there until the full payment is due to the operator.
This is a flexible payment so, if you cannot make a payment one month due to unexpected expenses, the repayment is recalculated and spread over the rest of your repayment term.
This is another 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 to 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 up to 12 weeks (three months) before you travel, all of your contributions will be refunded (except for the initial deposit).
If you cancel a month or less before, you forfeit the amount in total. However, as this would usually only be in the case of an emergency, any 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%.
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 FomoTravel receives a 0.3% fee.
This means the actual cost of paying off your holiday on a lay-by system is 2.5% compared with the 20%-plus you would be paying in interest to the bank in addition to credit card account service fees.
Interest earned in the trust account is also retained by FomoTravel to cover administration costs. FomoTravel makes its money from referral commission paid by the travel operators.
It’s easy to get carried away when you are in the dealership and the shiny new vehicle of your dreams appears to be within your budget as the finance manager manipulates the numbers and uses other tricks to reduce the monthly instalments.
But there are a few factors you should consider before buying a new car.
Take note of all your expenses and subtract those from your total income. There are many vehicle affordability calculators online that can help you calculate this. Also, shop around and compare prices to find a deal on a car that suits your budget.
BUDGET: KNOW THE COSTS:
Besides the instalments, there are many other expenses that can sometimes even be as high as your monthly instalment.
Rudolf Mahoney, head of brand and communications at WesBank, advises looking at the cost of fuel, toll and licence fees, maintenance costs and insurance.
ACCOUNT FOR INFLATION:
enough leeway in your budget to accommodate rising costs.
“Fuel price increases can quickly add up to have a negative effect on your monthly budget,” says Mahoney.
SAVE ON INTEREST:
“A shorter finance term will mean higher monthly repayments, but you’ll pay far less in interest fees,” concludes Mahoney.