It’s been speculated for years that buy-now-pay-later platforms (BNPL) could potentially have an adverse effect on your chances of getting a loan.
But, is it actually true?
For a number of years, Australian shoppers have been turning to BNPL platforms to purchase items, whether online (42 per cent) or in-store (16 per cent), according to the latest Mozo research.
Here’s a look into the realities of BNPL platforms and whether you should be more cautious of what you add to your checkout basket.
Unless you’ve been hiding under a rock these past few years, it’s not hard to see that the BNPL revolution is well and truly here. Like a modern version of Lay-By schemes, BNPL options are endless; from your favourite stores, services and utilities, to even pilates workouts or cosmetic treatments.
Recently Australia’s own Afterpay was sold to Jack Dorsey’s Square in a $39 billion deal, which has only added more hype and excitement to the already saturated space in Australia.
The premise of most BNPL platforms are relatively simple. These platforms allow people to break down purchases into more manageable, bite-sized portions and pay it off over a set period of time.
The main selling point; there is no interest charged on any purchases made.
In Australia, there are currently six major BNPL platforms including Afterpay, Openpay, ZipPay, Humm, Bundll, and Klarna.
How BNPL can impact your loan application
BNPL platforms are not recognised as credit providers since the National Consumer Credit Protection Act 2009 or NCCP Act does not regulate them.
Their services on their own cannot affect your credit score, as the soft credit enquiries the platforms perform are not listed on your credit report.
However, if you default or miss your monthly payments, these BNPL platforms, while also slugging you with late fees and other penalties, can reserve the right to report the defaults to credit reporting agencies. Once these appear on your credit file, your credit score is affected.
When lenders perform credit checks, they are able to directly see these monthly payments, or in some cases, lack therefore of. Over the past few years, lenders have seen more and more issues arise as a direct result of BNPL platforms, such as multiple BNPL repayments from one platform or from multiple, especially as consumers aren’t completely aware or understand the outcomes of having outstanding debts.
For example, at WLTH when we are assessing credit and specifically BNPL for clients looking to get a home loan. We check to see what the overall limit is for the BNPL provider, and if they have outgoing transactions. If they do have outgoing transitions we take into account that they and factor in that they will be there on an ongoing basis.
With 20 per cent of Aussies’ now having at least one BNPL account, these platforms have now become Australia’s fourth highest cause of debt.
Is it all doom and gloom?
As the BNPL space is still relatively new, its rules are still somewhat blurred.
While some people can get caught out by not paying back their BNPL in a timely manner, those that do can relax.
In order to successfully apply for a home loan and still enjoy the benefits that BNPL platforms have to offer, Aussies need to be aware of only using one account at a time, sticking to a budget that’s within their means, being careful not to use credit cards to pay off BNPL platforms and only purchase what they can afford to pay back.
By using BNPL platforms as a tool to better manage your cash flow, you realistically shouldn’t face too many issues when looking to get into the property market, as long as you are transparent with any platforms you are using.
Written by Brodie Haupt, CEO and co-founder of WLTH.