Could Buy Now Pay Later affect your ability to buy a home?

By May 30, 2019 Blog
Shopping on Credit

The Buy Now Pay Later sector is winning-over the youth demographic with the promise of instant gratification, but many in the finance industry are warning that with every sugar-high comes the risk of a corresponding low.

‘Buy Now Pay Later’ providers such as AfterPay and Zip Pay have experienced massive growth in popularity, with the number of users jumping from 400,000 to approximately 2 million between 2015 and 2018.

Driven by a simple proposition whereby the Buy Now Pay Later provider pays the merchant on behalf of the customer, allowing the customer to obtain the goods or receive a service immediately while subsequently paying off the debt generally through instalments, Buy Now Pay Later presents a tempting offering.

But as the sector’s breakneck growth continues, mortgage professionals are warning users, particularly in the younger demographic, to be cautious of overdoing it as this could risk effecting their chances of securing a home loan further down the track.

There are several problematically areas for Buy Now Pay Later customers, from both a personal character aspect and also a systematic credit application.

Personal

From a young age, generations before us have understood the hard-work, patience and satisfaction of routinely saving money to be able to purchase essential or discretionary items.  This determination drove a sense of self worth and taught the consumer to value the goods for life.
 
This determination also instilled a life long lesson in saving money for long term benefit and goals….such as purchasing their first home.

The banks view

Secondly, from a credit application point of view.  There may also be a stigma associated with using Buy Now Pay Later schemes rather than paying up-front and in-full.

Utilising this payment method may potentially send the wrong message to a bank.

If a lender sees a ‘buy now pay later’ provider frequently on a client’s bank statements, that can trigger more questions about their spending behaviours and ultimately may mean they choose to decline the application.

Set yourself up for success

Buy Now Pay Later schemes really encourage the users to live beyond their means, upgrade goods sooner than required and builds bad credit debt.

If you are concerned about your level of expenditure or your ability to secure a home loan, a conversation with Geelong Mortgage Adviser could set you on the right path.

It’s important to appropriately manage your expenses well in advance of applying for a home loan, that way you can show the bank that you can save and afford to service a mortgage when the time comes.  Call 0467 198 549 for an obligation free chat.