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Can shopping with Afterpay affect your ability to buy a house?

Afterpay is the largest buy now, pay later scheme in Australia.

In fact, Afterpay had more than $1.45 billion pass through its platform in the first three-quarters of last financial year.

It boasts more than 1.8 million customers, who mostly use it for online shopping, and 14,000 retailers under its wing.

The reason for Afterpay’s rapid rise is its interest-free, instant purchase business model.

To qualify, all a customer needs is a debit card, enough money for the first instalment and no proof of income. Customers then pay the remaining instalments fortnightly.

 

Are there risks?

It’s interest-free and instant. That sounds pretty good, right?!

The risk lies in the fact you can make multiple purchases using Afterpay without ANY proof of income.

So, you need to be very careful you don’t adopt bad spending habits that see you with debt you can’t repay.

 

Can Afterpay affect your ability to buy a house?

Afterpay (and ZipPay) are technically credit liabilities. Meaning that if you have trouble meeting the Afterpay payments and late fees appear on your account, then yes – this can affect your ability to borrow money.

Plus, instead of your bank account/ credit card statement reflecting one-off purchases, if it shows multiple Afterpay payments regularly being deducted from your account, a lender may consider these as ongoing monthly living expenses that need to be factored in for loan servicing purposes.

In the current lending environment where lenders are reviewing everything with a fine tooth comb, you need to be aware that all your payments may be queried.

As with other credit providers, if Afterpay chooses to report any negative activity (ie. late payments, missed payments or defaults) to credit reporting agencies, these blemishes may appear on your credit history making it more difficult to get your home loan approved.

 

What’s the right way to pay?

Being strong financially is all about managing your money wisely and knowing what works for you.

By all means take advantage of payment options that allow you to keep cash in your account for longer. Especially if you’re using these payment methods in conjunction with an offset account,  because this strategy can help you save interest on your home loan.

But don’t use delayed payment methods as a way to buy things you can’t afford otherwise. And don’t use them if you know you’ll be tempted to spend more money than you should.

If you don’t already have the cash to pay for it, don’t buy it. It’s really not more complicated than that.

In times where it’s getting harder to qualify for finance, we all need to think about protecting our borrowing capacity for appreciating assets – not depreciating items we’ll want to replace in a few months.

 

 

 


You can find more here:

  • http://www.abc.net.au/news/2018-05-01/afterpay-instant-interest-free-too-good-to-be-true/9710946
  • https://www.afterpay.com/en-AU/terms-of-service

 

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