The hidden danger potentially stopping you from owning your own home.
The Buy Now Pay Later sector is winning-over the youth demographic with the promise of instant gratification, but be careful.
‘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.
Driven by a simple proposition whereby 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 while subsequently paying off the debt generally through instalments, Buy Now Pay Later presents a tempting offering.
But as the sector’s breakneck growth continues, mortgage professionals are warning users, particularly in the younger demographic, to be cautious of overdoing it as this could risk effecting their chances of securing a home loan further down the track.
It’s the layby of our day but in reverse. It’s your forward credit for an item, which in theory, can make sense. You get the item or service and pay it off over instalments, so you’re actually putting forward your liability.
This might be ok for someone that manages their money well, if they pay off the item on time and use their mortgage offset account correctly. This way they’re delaying expenses and offsetting more of their savings against their home loan.
But how many people actually do that? Not many, and the rest are spending beyond their means.
As a broker I feel that this method of purchasing may send the wrong message to a bank. If a lender sees a ‘buy now pay later’ provider frequently on a client’s bank statements, that can trigger more questions about their spending behaviours and ultimately may mean they choose to decline the application. Especially if you don't have much savings to support this theory they may have.
I would much prefer to see my clients save for the item and demonstrate those good habits.
If you are concerned about your level of expenditure or your ability to secure a home loan, come and have a conversation with me at Volare Home Loans and I can set you on the right path.
It’s really important to appropriately manage your expenses well in advance of applying for a home loan, that way you can show the bank that you can save and afford to service a mortgage when the time comes.
Message from CAtherine
Occasionally I come across an interesting article to do with Home Loans. I thought I'd share some of these with you here.