Thomas Cook's book-now-pay-later scheme is not all it's cracked up to be
I hate to rain on anyone’s parade, but I couldn’t help being a little sceptical about the unveiling of a new way to pay for your holiday.
To coincide with the launch of its Summer 2019 programme (yes, some people really do like to book that far in advance) Thomas Cook has introduced “a new ￡0 deposit buy now pay later payment plan, helping holidaymakers to budget and spread the cost of their next trip away”.
This, it said, is the first arrangement of its kind to be offered by a tour operator, and would be valid for “selected” holidays departing between November 1, 2018 and October 31, 2019. I couldn’t quite get to the bottom of how these holidays were selected, but apparently it does apply to a “large proportion” of Thomas Cook’s offering.
You might think it sounds like a good idea, a way of easing the pain of paying for your holiday. I wasn’t so sure, and asked Thomas Cook to send me an example of how the scheme would work for a Christmas holiday in the Caribbean. The total cost of seven nights all-inclusive at the Hotel Playa Pesquero in Cuba from December 24-31, 2018 is currently ￡2,897.98 for two people, including flights from Manchester. You can still buy it in the normal way by making a ￡500 deposit up front, and paying the remaining balance on September 17.
If you end up cancelling your holiday you will face another disadvantage
Opt for the new scheme, and there would be no immediate deposit to pay. Instead, you would need to set up a direct debit from your current account. That would be billed ￡321.99 each month from March to November, with the customer able to choose the day of the month the payment is taken. The total ends up the same under each scheme.
You can perhaps already see that the zero deposit isn’t much of an incentive, because the first payment will fall due within a month anyway. And by the time you have met the second instalment in April you would already have paid ￡641.98 - more than the traditional deposit.
What’s more, if you paid in the traditional way and put the deposit on your credit card, you wouldn’t have to release the money for at least a month anyway, because card billing arrangements are in arrears. (Of course, this is only advantageous if you clear the balance each month and aren’t penalised with interest charges).
How to save money on family holidays
It’s true that, in the example Thomas Cook gave me, the last two instalments of the direct debit wouldn’t fall due until October and November - that’s later than the September 17 deadline under the traditional way of paying. But overall you get to keep more of your money for longer by using the latter method. You should also know that a “zero deposit” does not mean that you haven’t made a financial commitment when you make the booking. If you cancel before the first payment is made, the terms and conditions still make you liable to pay the full standard deposit (￡500).
If you end up cancelling later than this you will also face another disadvantage. Under normal payment arrangements, a cancellation which falls before the balance becomes due, simply means you forfeit the deposit you have already paid. If you are paying by instalments, however, you may well have already handed over much more than this. The cancellation charge will be the same (the equivalent of the standard deposit), but you will have to claim the remainder back from the operator.
Overall then I can absolutely see why this new payment system would be attractive to Thomas Cook. It receives much more of the holiday cost much earlier than it would do usually and, because the customer can’t pay by credit card, it keeps all the money - there is no commission to pay to the card issuer. But from the customer’s point of view I struggle to see any advantages.
By my calculations, you would be better off paying the deposit and - if you needed to - making your own arrangements to save the rest of the money so that you could foot the final balance when it fell due. Interest on deposit accounts may be derisory at the moment, but I’d certainly rather hang on to my own money than give it to Thomas Cook to look after for me.