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

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

With billion of dollars passing through its platform, Afterpay boasts over 2 million customers.

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 Zip Pay) 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.

Instead of your bank account/ credit card statement reflecting a one-off purchase, Afterpay payments show as a series of smaller amounts regularly deducted from your account. Which means that if you have an active purchase you’re still paying for, at the time you apply for finance, a lender may consider this as an ongoing liability and factor in your Afterpay deductions as an ongoing monthly expenses. Depending on your financial situation, this can considerably affect your borrowing capacity.

Furthermore, even if you can provide evidence that you have cleared your Afterpay account and have nothing further owing, the fact that you are using this credit facility can impact credit scoring.

In the current lending environment where lenders are reviewing everything with a fine tooth comb, you need to be aware that any payments deducted from your account can be queried. If you’re doing everything you can to buy your first home, we’d suggest paying off any outstanding amounts and not using it again.

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.

We’re not suggesting you shouldn’t take advantage of payment options that allow you to keep cash in your account for longer. Especially if you’re doing these things 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.

Don’t use them if you know you’ll be tempted to spend more money than you should.

And 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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