What Are The Pros And Cons Of Buy Now And Paying… Later And… Can BNPL Affect You Getting A Loan?
Article Summary At A Glance
Buying now and paying later is convenient, but there are some things you need to know before deciding if it’s right for you.
Buy Now Pay Later (BNPL) services can be great. Don’t have the money right now? No problem, just use AfterPay or some similar service and pay for it later over a number of repayments.
However, BNPL services do also come with a number of risks.
“I’ll just get that too… and that…” There’s another 3 repayments you need to cover in your next monthly expenses. And the month after that, or the next week, depending on your repayment term.
Repayments can easily add up, especially when buying for loved ones for Christmas presents, and can also impact on your ability to get a home loan in a number of ways.
5 Fast Facts About Buy Now Pay Later Services
- BNPL is not the same as traditional lay-by. Lay-by involves stores keeping goods aside for you and then you paying in two or more instalments before taking your good home. With BNPL, you receive the goods or services upfront and then pay for them in instalments at a later date.
- BNPL services involve the provider (e.g. Afterpay, Klarna etc) paying the retailer for the goods upfront instead of you having to do so. You then ‘pay back’ the provider in instalments.
- BNPL services can be used in-store or online.
- BNPL can be used to purchase both goods (e.g. shop items) and services (e.g. dental treatments).
- There are many BNPL providers in Australia. They include Afterpay, Brighte, Humm, Klarna, Latitude, Zip and Openpay. Paypal has also recently launched their own BNPL service.
Is The Buy-Now-Pay-Later Model A Win For Consumers Or A Potential Debt?
The buy-now-pay-later model is typically offered by retailers or service providers, who sell products to consumers with the understanding that they will be paid for in instalments at a later date. This model is often marketed as an easy way to purchase items without costly credit card interest rates or high deposit payments. However, you should be aware of the risks of Buy Now Pay Later (BNPL) services before deciding whether or not to buy something with this model.
Do Buy Now Pay Later Providers Do A Credit Check?
While most BNPL purchases do not involve a credit check and do not affect your credit score or appear on your credit file, this does not mean they are undetectable to any banks or lenders you may approach for a loan. There are other checks that your lender may perform, including checking your bank account for sufficient funds and reviewing any payments made to BNPL services.
Late or missed BNPL repayments may appear on your credit report, particularly if they are substantially overdue, and this can affect your credit score. A credit score is a measure of your reliability as a borrower. It’s based on how you’ve paid off loans, debts and other obligations in the past. A good credit rating can make it easier to get a loan, while a poor credit rating can make it trickier or limit your options.
Late or missed BNPL repayments may appear on your credit report, particularly if they are substantially overdue, and this can affect your ability to secure a home loan or limit your options.
Did You Know BNPL (Buy Now Pay Later) Services Can Affect You Getting A Loan?
BNPL can have an impact when it comes time to seek a loan through a bank or finance broker. Your BNPL purchases won’t usually show up in your credit check, but your repayments to BNPL providers will be visible on the bank statements you are required to submit when applying for a loan. And they can make bank loan officers and finance brokers nervous about your ability to service a loan when you already have ongoing credit commitments you need to meet each month.
Your lender may require you to reduce or repay and close your BNPL services if it has concerns about your ability to meet any additional loan commitments.
Late or missed BNPL repayments may appear on your credit report, particularly if they are substantially overdue, and this can affect your ability to secure a home loan or limit your options.
Are There Other Risks With BNPL?
In addition to the potential impact on any loan applications, there are other risks with BNPL, including the following.
Many BNPL providers charge fees, which ultimately means you may end up paying more for the product when using these services than you would if you have paid upfront. It can also be easy to overcommit yourself by making lots of BNPL purchases.
Although each individual repayment is small, these can soon add up if you are repaying a number of goods and services at once, and it can land you in financial difficulty.
Most people already have set deductions coming out of their wage, so you need to know how much money you’ll have left IN HAND at the end of each month once you factor in repayments, monthly expenses, food, electricity, phone, travel, internet and so on.
Will you have enough to live on? With no credit or thorough checks being done, the onus is entirely on you to ensure you can afford the BNPL services you agree to!
BNPL services can affect your ability to secure a home loan, so it’s important to talk to your broker about how this might impact you.
A Summary Of The Pros And Cons Of Buying Now And Paying Later (BNPL Services)
Buy Now Pay Later, BNPL, can be a great option when you urgently need goods or services but don’t have the funds up front.
BNPL can allow you to budget for the items you need in a number of smaller, more manageable repayments. However, it can be easy for purchases to quickly add up and for repayments to spiral out of control, leading to financial difficulties.
BNPL services can also affect your ability to secure a home loan, so it’s important to talk to your broker about how this might impact you.
If you find yourself in financial trouble with BNPL or other debts, free financial counselling is available throughout Australia. More information can be found at:
https://moneysmart.gov.au/managing-debt/financial-counselling
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Financial Hardship Resources And Contacts
We understand this is a difficult time for many of our clients, friends and family. We have compiled the below list of financial hardship contacts and resources for anyone who may find them helpful.
Lenders’ Hardship Contacts
For additional information and to be directed to the relevant section of each lender’s website, please visit this page on our website: https://www.nbshomeloans.com.au/financial-resources-hardship-contacts-covid-19-australia
ANZ: 1800 351 548
Bank of China: 1800 095566
Bank of Queensland: 1800 079 866 or CustomerAssistanceTeam@boq.com.au
Bankwest: 1300 787 144
Bluestone: 13 25 83
CBA: 1300 720 814 or customerassist@cba.com.au
Connective HL: 1300 543 558
Connective Solutions: 13 73 77
ING: 1300 349 166
Latrobe: 13 80 10 or hardshipassist@latrobefinancial.com.au
Macquarie: 1300 363 330
ME Bank: 13 15 63
MyState: 138 001
NAB: 1800 701 599
Pepper: 1800 356 383
St George: 1300 303 110
Suncorp: 1800 225 223
Virgin Money: 1800 701 997
Westpac: 1800 067 497
Additional Support Resources
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