LAY-BY TRAVEL

Maya Fisher-French

CityPress - - Business -

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%.

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 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:

Leave

“A shorter fi­nance term will mean higher monthly re­pay­ments, but you’ll pay far less in in­ter­est fees,” con­cludes Ma­honey.

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