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How buy now, pay later impacts your home loan application

With the festive season fast approaching, the average Australian is expected to spend around $1,200 on presents, food, and related celebratory activities. Historically, huge sums are racked up on credit cards, but spending trends show Buy Now, Pay Later facilities such as Afterpay and Zip Pay growing in popularity. But the question is, do they have an impact in your ability to secure a home loan?

The short answer is a resounding “Yes”, they do indeed affect your capacity to borrow, so if a new home loan is on your horizon, it might pay to proceed with caution.

How Does Buy, Now Pay Later Work?

Buy Now, Pay Later (BNPL) is a facility that allows a purchaser to buy or order a product immediately and make itemised payments over a specified period to pay it off. The bonus of these arrangements is that they do not incur interest charges and can therefore be a more attractive form of credit.

Why are BNPL Services so Popular?

Apart from being more cost effective than a credit card, they can be an extremely handy tool for acquiring goods when you don’t have cash available at a particular point in time. Some common instances where consumers use them include:

  • When someone does not have a credit card or does not want to increase their balance and be charged interest
  • When a there is limited supply of a particular item that the purchaser does not want to miss out on though do not have adequate funds.
  • When an item is on sale, and it is a way to secure it at a cheaper price.
  • When you are financially stretched and the ability to spread the cost over several instalments eases the financial burden.

How Does Buy Now Pay Later Affect Your Home Loan Application?

Firstly, BNPL facilities appear on your Credit report. This means that if you default on your payments the provider reserves the right to report these to the relevant agencies. This may impact your credit score or at the very least prompt your potential lender to investigate your conduct a little deeper and ask probing questions about your commitments.

Secondly, use of BNPL may indicate to lenders that your financial management is not strong. If you rely on these facilities, it may be a sign of financial distress or overall poor money management in the eyes of the bank. Having a few BNPL facilities on the go may increase an applicant’s risk profile with their lender which is not ideal, particularly if your position is already on the precarious side.

Does Buy Now Pay Later Affect Your Borrowing Capacity?

Although each lender has their own unique metrics, you can expect to have your BNPL instalment included as part of your living expenses. This in turn will affect what they will be prepared to lend. Even though most BNPL repayments are likely to be relatively small, if servicing is tight, every line item is crucial so it may negatively impact your bottom line.

Where possible it may prove beneficial to pay off the remaining balance of you BNPL to relieve yourself of the commitment and streamline your finances.

Now is the time of year when your finances can be stretched to the limit and having a Buy Now Pay Later facility may be and option to get what you need to see you through. Whilst they are not necessarily something to avoid, they should be entered into mindfully. If you plan on securing a new home loan in the near future remember that BNPL will impact your application so tread carefully where possible.

Contact the Blackburne Mortgage Broking team for more information.

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Paul Prindiville


0438 196 695