fbpx Skip to content

How Afterpay can hurt your chances at a home loan

How Afterpay can hurt your chances at a home loan

Retail payment facilities like Afterpay and Zippay, can seem like wonderfully convenient options, but can it impact your chances of getting a home loan?

The short answer is yes, especially if it is your first home loan.

How does Afterpay/Zippay work?

Afterpay and Zippay are innovative retail purchase payment options. You could consider them the modern approach to layby – only they allow you to take home your items now and pay for them later. These facilities are easy to set up, without lengthy application processes and delays that you often find at a bank. They are seamlessly integrated into an online store’s checkout. You can simply choose to pay with Afterpay, your payment plan is automatically calculated, and your purchase is on its way. Payments are usually made in four fortnightly instalments direct debited from your bank account or credit card. There are no fees or interest on repayments unless you can’t make the payment (make sure you understand the late payment fees). They are now also increasingly becoming available in-store as well.

Sounds like a fast and easy cash flow solution, especially at Christmas time, right?

While it is true that Afterpay can help to solve an immediate cash flow issue, it may impact your ability to secure a home loan.

How you manage short-term consumer debt is part of what you are assessed on when you apply for a home loan.

What is consumer debt?

Consumer debt includes credit cards, interest-free facilities, and buy now, pay later facilities.

Some forms of consumer debt might not even feel like debt to you. If you’ve bought a new lounge suite under an ‘interest-free period’ deal from a big box store, that’s consumer debt. A car lease also counts. In fact, anything that you’ve taken possession of now but haven’t already paid for in full might come into this umbrella.

So why does it matter?

If you are using facilities like Afterpay for discretionary purchases, it may raise questions for lenders about whether you are living beyond your means. If you do not have enough cash reserves to make purchases, how will you manage unanticipated expenses once you have a home loan?

If the repayments are being debited from a credit card, this may raise further red flags for lenders about how well you manage your money.

Buy now, pay later facilities tend to encourage poor spending habits. When people have a facility like this, they tend to make impulse purchases that they probably wouldn’t if they had to save for four weeks to buy it.

A credit check may be performed when you apply for the facility, which can affect your credit rating. A credit report with several credit enquiries lowers your overall score with lenders because it implies you are living from paycheque to paycheque and do not have enough cash reserves to draw on for unanticipated expenses.

If you are considering applying for a home loan in the next six months, it is recommended that you don’t use short-term consumer debt as a way of getting by. Instead, take a look at your spending habits, find ways to cut back and build a good savings habit. You can still treat yourself, but with the money you have – not borrowed money.

Related articles from the view

Aug 22, 2019

5 Smart ways to spend your tax return

Thanks to the Coalition’s tax cuts, a record number of Australians have already lodged their tax return for 2018-19 and have a nice little lump sum burning a hole in their bank account. But what to spend it on? You could sock it into the savings account, but surely it’s your patriotic duty to spend…
Read more
  • General
Oct 15, 2019

Five questions to ask a real estate agent

Thinking of selling your house? One of your first steps will be to appoint a real estate agent. A good real estate agent will do the hard work of selling your home for you. That includes listing it for sale, marketing it to attract buyers, showing it at open inspections and negotiating with potential purchasers.…
Read more
  • General
Jul 4, 2019

From zero to home owner

Buying a house or a unit of your very own is high on the wish list for most adults, but it can also feel very daunting. From the moment your mind turns to real estate, there are a lot of steps to take to arrive at the moment you walk through your very own front…
Read more
  • General
  • Home Loans
  • Residential
  • Rural
Oct 3, 2019

Four ways to pay your mortgage off faster

Dreaming of being mortgage free? Just think of all the things you could buy with the money you send to the home loan every month! With interest rates at an all-time low, there’s never been a better time to make that dream a reality. Here are four strategies to get you mortgage-free. 1. Make extra…
Read more
  • General
  • Home Loans
  • Residential
  • Rural
Jul 18, 2018

Guide to Buying

We know the decision to buy can sometimes be complex and confusing, and that’s why we’ve done all the hard thinking for you. Buying a home can be a complicated process full of rules and regulations the average home buyer isn’t familiar with. We’ll do all the hard work for you, leaving you time to…
Read more
  • Guides