Buy Now Pay Later schemes are winning over consumers with the promise of instant purchases, little risk and a dopamine hit from the joy of new belongings that keeps them coming back for more. As we know, there can’t be good times without the bad and Buy Now Pay Later definitely has its negatives. Sarah Eifermann weighs in on the topic to share how this looks from the perspective of a lending specialist.
The growth of Buy Now Pay Later services
Buy Now Pay Later providers have experienced massive growth in popularity, with the number of users jumping from 400,000 to approximately 2 million between 2015 and 2018.
Leaving the days of Lay-By behind, Buy Now Pay Later is built on the simple process where a provider pays for a product or service on behalf of the customers. The customer then receives their goods or services straight away, paying off the debt typically through fortnightly instalments and only paying fees if those payments can’t be met. It’s no wonder the popularity of this option grew 400% in 3 years.
As the use of these schemes continues to grow mortgage professionals are warning users, particularly the younger demographic, to be cautious of relying on these payment plans. Getting in over your head in repayments can tarnish your chances of securing a home loan in the future.
Sarah says that “in some cases it makes sense, you get the item or service and pay it off over instalments, so you’re proving your ability to pay it off. This might be ok for someone that manages their money well if they pay off the item on time and use their mortgage offset account correctly. This way they’re delaying expenses and offsetting more of their savings against their home loan”.
The real problem then lies with the other 99% who are using the available payments to spend beyond their means, such as committing to purchases that exceed their incoming cash flow.
As a result of using these payments, a stigma has developed around those using Buy Now, Pay Later as a way around paying for purchases in full, sending the wrong message to the bank and positioning them as unfit for a long term loan.
“If a lender sees a ‘buy now pay later’ provider frequently on a client’s bank statements, that can trigger more questions about their spending behaviours and ultimately may mean they choose to decline the application. I would much prefer to see my clients save for the item and demonstrate those good habits.”
It’s important to manage your expenses before considering applying for a home loan. Show the bank that you can save, have successfully paid off loans in the past and have no existing debt. You’ll be more likely to be considered for a mortgage.
Need some professional advice when it comes to saving and applying for a home loan? Chat to us at Kudos Money! With a background in advisory, partnered with mortgage expertise we’ll get you on track to reaching your property goals.