Buy Now Pay Later - the hidden dangers
The hidden danger potentially stopping you from owning your own home
Buy Now, Pay Later (BNPL) credit services, such as Afterpay, Zip (ZipPay and ZipMoney), Humm, and Openpay, are gaining popularity with the promise of instant gratification, but with every high comes the risk of a corresponding low. The BNPL industry has experienced rapid growth in popularity, with the number of users jumping from 400,000 to approximately 2 million between 2015 and 2018. (Roy Morgan research states 1.95 million users in year to Sep 2019, up from 1.38 million in previous 12 months). The BNPL provider pays the merchant on behalf of the customer, allowing the customer to obtain the goods or service immediately while subsequently repaying the debt to the provider, generally through instalments .
However as the industry’s growth continues, I am warning users to be cautious of the temptation the service provides as all debt can affect the chances of securing a home/investment loan further down the track.
I have had clients and their families come to see me to discuss their financial situation. After reviewing their finances I could see they earned a good income and had saved well and consistently for a property, but sometimes BNPL can be the difference between getting a loan and not. Many people are unaware that these services are treated much like a credit card by lenders.
If a lender sees frequent BNPL transactions on a potential client’s bank statement (via direct debit payments), this can trigger questions about their spending habits.
I have known lenders to decline applications on these grounds.
I would much prefer to see my clients save and pay for an item themselves, thereby demonstrating good saving habits. Or, if it is necessary to have a credit card, have one with a low limit and pay it off as quickly as possible, ensuring to never miss a payment. It’s important to appropriately manage your finances well in advance of applying for a home loan, that way you can prove to the lender that you can save and afford to service a mortgage when the time comes.
