New financial technology has taken the retail world by storm. Systems that allow you to pay off your purchase by staggered repayments over a number of weeks with no interest charged, are being offered in most online stores and in-store too. But could these “lay-by” services be doing more damage than good? Can Afterpay and the likes actually affect a mortgage application?
What is Afterpay?
You may already have used Afterpay as a payment option when buying in store or online. Essentially it’s a lay-by system that lets you take whatever you’ve purchased up front and then pay it off in instalments. It’s linked to your Visa or Mastercard debit or credit card and, provided you meet your repayments on time, there’s no interest charged on your purchase.
How does the bank view Afterpay?
When it comes to applying for a home loan, banks want to know about all of the money you owe – your debt – and how big each of those debts is, as that can impact on your ability to repay your mortgage. Banks also want to know that paying back your mortgage is your first priority and so any other debt is seen as a risk to the bank.
When banks calculate your budget and whether or not you can afford a home loan, the small, repeating repayments like Afterpay (and Part Pay or Oxipay) will be factored in to ascertaining whether or not you can afford to borrow money for buying your home, despite having a short end date.
Can using Afterpay affect future loan applications?
Across the ditch in Australia, banks are already referencing services like Afterpay when assessing borrowers for new loans. Westpac*, for example, announced a tightening of scrutiny of digital consumer credit in a bid to improve borrowing standards by getting a much clearer picture of a borrower’s financial situation.
As more and more young people struggle to get onto the property ladder, the impact of using services like Afterpay should not be viewed lightly. Even with just a small loan amount, banks are more likely to consider this debt before a loan is approved.
And while it may not be deemed credit, banks treat it as such. Missing repayments on Afterpay can mean more than just a dishonour fee – it could mean the difference between being approved for a home loan or not.
Sound financial advice
At Mortgage Express, we work alongside you to help you present the best possible mortgage application. What’s more, because we work with a panel of lenders, we can usually find a lending solution even if the bank has said no.
If you’re new to the property market and need guidance or advice around a home loan or home insurance, talk to our team of professional mortgage advisers.
The information contained in this article was prepared by Mortgage Express Limited. While every care has been taken to supply accurate information, errors and omissions may occur. Accordingly, Mortgage Express Limited accepts no responsibility for any loss caused as a result of any person relying on the information supplied in this article.
This article does not constitute regulated financial advice to retail clients. It may not be relevant to individual circumstances. Nothing in this article is, or should be taken as, an offer, invitation, or recommendation to buy, sell, or retain any investment in or make any deposit with any person. You should seek professional advice before taking any action in relation to the matters dealt within this article.
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