Want a home loan? Afterpay could be hurting your chances
Are you thinking of applying for a home loan? Then you might want to stay away from Afterpay. The buy now, pay later arrangements that have soared in popularity of late have recently drawn the attention of mortgage brokers who are starting to look beyond the convenience.
What’s the concern?
New concerns have been raised regarding the regulatory risks of Afterpay by analysts, which now has credit score providers and mortgage brokers sitting up and paying attention. According to Otto Dargan, the Managing director of Home Loan Experts, the main issue of home loan applicants using Afterpay is that it begs the question, “...is this person living beyond their means?”, regardless of whether or not they are.
Dargan further advised consumers that using Afterpay can give banks the impression that its applicants are struggling financially, since the use of Afterpay may indicate that they don’t have enough money available to pay for a product outright. He went on to warn those using the service and others like it, that they should only use it as a temporary measure as it isn’t a sustainable option.
Use Afterpay with caution
Leanna Scott, principal at Mortgage Choice also weighed in, saying that Afterpay should only be used by consumers after they’ve purchased a property, so as not to raise any warning flags with home loan providers. She additionally advised individuals that the best thing they could do is to be as cautious and methodical with their spending as possible in the months prior to applying for a home loan.
It’s crucial that people understand the effect that having a buy now, pay later account could have on their credit history and current credit accounts, warned Poli Konstantinidis, head of credit services for Australasia’s Experian. He went on to state that this is especially true where Afterpay is being paid off directly from a credit card, since “the way you use both credit cards and ‘buy now, pay later’ products is part of what you’re assessed on when applying for credit."
Not everyone agrees
On the contrary, the notion of Afterpay users as being potential credit risks to banks and money lenders is being disputed by chief executive of Afterpay Anthony Eisen. He stated that the research conducted by their company in many ways showed the exact opposite.
"The most compelling statistic I get out of that is that 70 per cent of respondents who use Afterpay say they’re using credit less. Our customers aren’t low socio-economic. They are customers who don’t want to use credit cards and fall into a debt trap for their lifestyle purchases,” he said.
However, a survey taken by the investment bank showed very different results. Their research showed that those who use services like Afterpay are more likely to have more kinds of debt and had a higher chance of being declined for credit cards in the past.
Surcharge rules may be amended
The Reserve Bank announced only last Friday that they may decide to override the rules in place preventing retailers from placing surcharges onto buy now, pay later purchases, which resulted in a steep decline in Afterpay shares.
The RBA stated that they would be doing a review next year of the “no surcharge” rules that are established by buy now, pay later services. They additionally highlighted that these services often inhibit retailers from applying a surcharge to pass on to customers, making it rather expensive to offer. They noted that retailers are paying “much higher” fees to these operators than for deposit or credit cards.
"This can be problematic for merchants that feel compelled to offer BNPL services as a payment option for competitive reasons, but are unable to recoup the merchant fees from the customers that directly benefit from the service," the RBA said.
Who should pay the fees?
If paid on time, consumers are not obliged to pay a fee for using buy now, pay later services, however according to analysts, vendors are paying a fee of between 3 and 7 percent. Morningstar analyst Chanaka Gunasekera noted that this puts merchants in a bind, since their customers rely on Afterpay services to be free of charge, and placing a surcharge on those services would be an especially risky strategy.
If you’re hoping to secure a home loan but worried about your credit or want to know how your Afterpay usage may have affected you, give LKFS a call on 1300 930 106 and we’ll help you get it sorted.