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The ‘buy now pay later’ industry, which includes services such as Afterpay and Zip Co, has experienced rapid growth in recent years by allowing customers to finance their purchase now and repay this over several instalments.
Consumers are turning more and more to these services as a source of short-term finance for purchases as varied as a new pair of shoes, new appliances, accommodation for a holiday or, recently announced by Afterpay, a trip to the pub. While these services can be a useful tool that provides financial flexibility for consumers, many don’t realise the impact that it can have on your ability accessing finance for a purchase of a home.
As with other types of debt (such as credit cards or car loans), ‘buy now pay later’ debts are taken into consideration by banks when you are applying for loan finance. There are two significant factors that you should consider before taking on a ‘buy now pay later’ debt if you are considering applying for a loan:
1. Impact on your loan limit
When considering a loan application banks will take into consideration your personal financial situation, including your assets and your debts. A ‘buy now pay later’ debt will be included as part of this, potentially reducing the loan they would be willing to provide you.
They also consider your ability to make repayments on your loan, which is determined by looking at your wage (total income) and your expenses. The repayment instalments due on your ‘buy now pay later’ debt would also be considered an expense and could again influence the amount they were willing to lend you.
2. Delay on loan approval
Searching for a home can be a long and stressful process, and when you find the perfect one everything can become very time sensitive. That’s why it is critical that getting your loan application approved isn’t the part slowing you down. An undeclared ‘buy now pay later’ debt may complicate the loan application process and could slow down approval of your loan, bringing an already stressful and time critical situation, it could add an unnecessary extra level of uncertainty.
While all debt has its place, and definitely not all debt is bad, ensure that when considering a short term convenient solution that it also fits in with your long term goals.
If you would like to discuss financial management alternatives, plans or discuss your debt, please contact your C&N Advisor.
