The Buy Now Pay Later sector is winning-over billions of dollars of new business with the promise of instant gratification; however my warning is that with every sugar-high comes the risk of a corresponding low.
‘Buy Now Pay Later’ providers such as AfterPay and Zip Pay have experienced massive growth in popularity, with the number of users jumping from 400,000 to approximately 3 million between 2015 and 2020.
Creating the shift in people’s buying habits is access to easy credit during pandemic lockdowns and restrictions, providing more time for many to spend frivolously in their downtime, perhaps to reduce boredom and to feel better about the world.
A perfect storm for bad credit habits developing.
Even some mainstream media are encouraging this behaviour through their advertorials they call “current affairs”.
I can’t emphasise enough to be very careful of falling into these bad habits as lenders will be sure to punish you later.
Driven by a simple proposition whereby the Buy Now Pay Later provider pays the merchant on behalf of the customer, allowing the customer to obtain the goods or receive a service immediately while subsequently paying off the debt generally through instalments, Buy Now Pay Later presents a tempting offering.
But as the sector’s breakneck growth continues, I need to warn you, particularly if you are in the younger demographic, to be cautious of overdoing it as this habit could risk your chances of securing a home loan further down the track.
‘Buy Now Pay Later’ might be ok for someone who 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.
But there are only a small percentage people doing that and the rest are spending beyond their means.
As a result, there may also be a stigma associated with using Buy Now Pay Later schemes rather than paying up-front and in-full.
Utilising this payment method may potentially send the wrong message to a lender.
If a lender sees a ‘Buy Now Pay Later’ provider frequently on a potential borrower’s bank statements, that can trigger more questions about their spending behaviours and ultimately may mean they choose to decline the application.
If you are concerned about your level of expenditure or your ability to secure a home loan or you may already have out of control bad debt that can be consolidated with other loans. A chat today could set you on the right path for the future.
Call me anytime on 0409 02 99 22.
It is important to appropriately manage your expenses well in advance of applying for a home loan, that way you can show the bank that you can save and afford to service a mortgage when the time comes.
As always “buyer beware” especially with easy credit on the “never, never”.
Stay safe, take care.