I have one tip to share: beware the alluring and enticing shopping lifestyle of Afterpay.
I gave into temptation and purchased a few little extras, especially during Covid. It gave me an instant feeling of satisfaction, especially when working from home and missing social interaction, or sorting through countless Covid rule changes…I’m sure most of you can relate! And now we have the festive season upon us and even more tempting gifts to separate us from a positive credit rating.
There is no doubt that Afterpay is the current ‘trend’ to finance everything from a $15 lipstick to a larger spend of $1,500 on bed furniture. That all too familiar message at the checkout register has been instilled into the brains of the modern-day consumer: “Your total is $80, or, 4 interest-free instalments of $20 through Afterpay”. The temptation is difficult to ignore.
There is a lot of information in the current market advising the consumer to ‘be wary of buy now, pay later services’. In my role as Sales Manager for the LOCATIONS estate agents team, and sales consultant for Riverstone Rise, I can share from experience that Afterpay is creating financial woes. I have witnessed numerous clients have their finance applications declined due to their Afterpay account. To a buyer, it is not a traditional debt and hence Afterpay is often overlooked on a buyer’s loan application. Afterpay can be the single reason a buyer may be declined and therefore not able to buy or build their new home.
Clients are often confused by the banks weighting of Afterpay against the client’s loan application. The amount owing to these lenders can often be small, but despite the amounts owing, the banks are very wary when they see these transactions on a buyer’s bank statements. The regular consumer might not realise that each transaction made with companies like Afterpay raises a credit enquiry and this information in listed on your credit file.
When I asked Chris Maguire from Loan Market if clients should consider closing these types of accounts his answer was without hesitation:
“Always…unlike great repayment history with a car loan which can help to build your credit score, these Buy Now Pay Later facilities only negatively impact you. Some can be understandable.
“The $5,000 ZipMoney to add solar panels to your home interest free, that makes complete sense. But ‘financing’ everyday items like clothing does not paint a good picture to the banks and lenders of someone who is financially responsible enough to pay back hundreds of thousands of dollars.”
Purchases made with buy now, pay later (BNPL) providers show up on your bank account statements. If lenders see multiple BNPL transactions coming out of your account, it can raise red flags mainly because you’re required to pay these off within a short amount of time; this might indicate that you could be short on cash in the short term as you repay these debts.
When lenders assess your credit worthiness, they often look at three months’ (or more) worth of statements to fully assess your affordability and make a judgement on whether giving you credit is responsible or not. While lenders are not explicitly instructed to decline applicants with BNPL history, they are urged to consider the risks.
At the time of writing this article, Afterpay do not allow account holders to close their account! This leaves the gate wide open for future use and therefore, future damage to your credit file.
I’ll leave you with my best advice: if you are going to apply for credit then re-consider that tempting BNPL purchase, because it might affect your chances of getting a loan and investing in your long term financial goals.