Does Afterpay Affect My Mortgage Application?

Afterpay are in a unique position. Customers are indebted to them, and yet they aren’t regulated under the National Credit Act. The reason for this is because they are not charging interest, which is how a standard loan/credit facility would operate. Similar buy now, pay later schemes such as Zip Pay are achieving the same result using slightly different methods.

Unfortunately for borrowers, this doesn’t stop banks from treating Afterpay/Zip Pay as a form of credit or debt. In fact, there are a number of reasons why a bank may decline your loan application if you’re signed up to a buy now, pay later scheme.

It’s a testament to your money habits

Using the service shows that you’re potentially willing to spend more than you earn on a regular basis. Even if you can afford the goods that you’re purchasing, the banks see this as somewhat reckless. If you can’t justify the purchase as a lump sump payment, then perhaps it’s something you wouldn’t have even bought if Afterpay wasn’t available. Essentially, lenders see the use of Afterpay as practicing and encouraging poor money habits. Therefore, they are less inclined to lend to you while you have an account.

It looks bad if you’ve missed or made late repayments

Lenders can ask for a history of bank statements (the time period requested depends on the type of loan). Banks will be aware of any recent missing or late repayments to Afterpay which will decrease the likelihood of them lending to you. If you miss payments to Afterpay, what would stop you from missing repayments to the bank?

Reduced borrowing capacity

If you’re using Afterpay frequently, the bank is likely to consider it as part of your monthly expenses. They will determine your average spend and by adding this to your monthly expenses, your borrowing capacity will reduce. This means you will have a smaller surplus (left over money) each month to make repayments with. So instead of borrowing $450,000 for your house purchase, the bank may only lend you $445,000 for example. The difference between the two figures could vary in a large way depending on average monthly Afterpay commitments.

They’ll probably ask you to close the account anyway

As discussed in the first point, lenders see Afterpay as encouragement to practice poor money skills. Instead of hoping that their customers don’t overspend to the point where they can no longer make loan repayments, they usually take the option away and ask for the account to be closed down before approving the loan. Therefore, it’s better to close the account in the months leading up to the loan application so that you potentially have a higher borrowing capacity as discussed in the last point.

Your credit score could be affected

If you do happen to default on repayments, Afterpay has the ability to report this and consequently lower your credit score. This means you would have adverse reporting on your credit file, which is something lenders usually avoid. Additionally, by having a credit score that is below average then this could eliminate a number of banks willing to lend to you.