The Buy Now Pay Later sector is winning over the youth demographic, with the promise of instant gratification (guilty!). But 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.

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. They are then able to pay off the debt through regular installments… how tempting!

Essentially, it’s the lay-by of our day, but in reverse. You get the item or service upfront, and you pay it off via installments, so you’re actually putting forward your liability. What’s not to love… new outfit now, pay later!

Win win! Right?! Well, not necessarily!

As the sector’s growth continues, be cautious not to overdo it, particularly you young whipper-snappers! Believe it or not, this type of credit activity can hinder your chances of successfully securing a home loan further down the track.

This type of purchase arrangement might be OK for you if you manage your money well. That is, you pay off the item on time and use your mortgage offset account correctly. However… the reality is, that there’s probably about 10% of people doing that, and the rest are spending beyond their means. Sorry to rain on your parade!

As a result, there may be a stigma associated with using Buy Now Pay Later schemes rather than paying upfront and in full. Utilising this payment method can potentially send the wrong message to a bank. If a lender sees a ‘buy now pay later’ provider frequently on your bank statements, that can trigger lots of questions about your spending behaviours.

Thinking of applying for a loan this year? It’s important to manage your expenses well in advance, that is, at least 6 months ahead of applying for a home loan. That way, you can prove to the lender that you can save, manage your money effectively, and afford a mortgage!

If you are concerned about your level of expenditure, or your ability to secure a home loan, please reach out!

We can help you put steps in place, well in advance, to help strengthen your application and make you look more favourable to the banks!

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