Afterpay may not be afteryay if you’re interested in buying a house or refinancing any time soon. Here we look into the risks of afterpay and how it may impact your borrowing capacity when applying for a home loan.
A recent report conducted by ASIC revealed that the number of Australians using buy now, pay later services has increased by 500% in the last two financial years, largely due to the emergence of marketing savvy services like Afterpay and Zip.
To demonstrate its growth, the number of transactions in April 2016 was around 50,000, growing to 1.9 million transactions in just over two years. As at 30 June 2018, the amount owing in outstanding balances was $903 million.
With consumers citing ease of use, convenience and less perceived risk than other payment options, consumers are generally not charged interest and there are limits on the fees’, which may be an upfront fee or account keeping fee. The main danger is being caught up in a trap of late fee’s. Afterpay, for example, made 25% of its overall revenue in the last financial year from its capped consumer late fees.
Based on ASIC’s research, the danger is in how the service is used. They are currently not regulated under the National Credit Act and are therefore not required to be licensed or to comply with responsible lending laws. This means they are not required to inquire into the consumer’s financial position (such as by examining income or existing debt) before approving a credit facility.
It’s important to note that, even if you’re a pro at managing your money every month and avoiding additional fees and charges from services like these, every transaction will show up on your bank statements, and possibly your credit file. In today’s current lending environment, where lenders will scrutinise spending habits and living expenses, you can bet that the regular use of buy now pay later services will be a red flag for them, even if you’re not missing repayments.
Another way of looking at it is the consideration that although a consumer may not have missed a repayment, we still don’t know the impact these buy now, pay later commitments may be having on other areas such as not paying down a maxed-out credit card or not being able to afford other essential goods and services such as groceries or utilities.
Afterpay has become extremely popular in our materialistic, want-it-now culture, but we urge you to think twice before you purchase in this way. If you really need it, wait until you have the money. Chances are you’ll have forgotten all about it by then and can save the money instead!
Contact an award winning mortgage broker Perth to discuss the impact of afterpay and other things that may impact your credit rating if you’re applying for a home loan.
