What are the hidden risks of using Afterpay?

It seems that with Buy Now, Pay Later we really can have it all!

You see it, you like it, you want it, and now you’ve got it — all thanks to Afterpay. So, what is it? Afterpay is a digital service that allows consumers to obtain products immediately, splitting the cost into four even repayments. The first one is up front, and then you pay the remainder in fortnightly instalments post-purchase.

Clearly a crowd-favourite, Afterpay’s market value skyrocketed to beyond $1 billion in just four years. Almost any retailer you can think of now offers Afterpay, and chances are you, or multiple people you know, have an Afterpay account. If you’re one of the million people who buy now and pay later, you’re probably wondering if it can affect your ability to get a home loan or affect your credit score.

The answer in short – no. As long as you’re using it responsibly.

In some cases, lenders may deny home loan approvals due to Afterpay activity, but there’s an obvious reason why.When we spend money that we don’t have, it reflects our ability to pay back debts. These debts are then monitored and checked by lenders to ensure that we have a reliable history of making payments, and therefore are likely to make back the mortgage repayments.

In the case of Afterpay, when a consumer fails to pay back the money for the product they are hit with a late fee of $10, or in some cases $25. Late fees continue to increase in price and frequency the longer a consumer doesn’t pay back their debt.

In 2018, 24% of Afterpay’s overall revenue was attributed to late fees. So it’s safe to assume many of us have struggled making those repayments. If you have struggled to pay back Afterpay debts and have been hit with late fees in the past, there is a possibility that this will affect your home loan application.

However, if you’re a responsible Afterpay user and pay back your installments reliably, attaining a home loan shouldn’t be a problem. In many cases, it demonstrates your ability to manage cash flow and money well.

So, the good news is you don’t have to close down your Afterpay account now that you’re looking to purchase a home.Just ensure you’re making back the weekly installments and consolidating any debts and you’re on your way. Though you don’t have to shut it down, you can be sure that that Afterpay account of yours will probably sit idle for a while once those mortgage repayments start flowing in.

Want to check your credit score? You can check this for free by contacting a credit reporting body (CRB) listed here on the Government website.

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