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Will ‘Buy Now Pay Later’ affect your loan approval?

While lay-buy has been around for some time now, Buy-Now-Pay-Later (BNPL) platforms are relatively new. Since they burst onto the scene around 2015, services like Afterpay have really changed the online shopping game. While paying off your purchases with four easy instalments seems like a win-win situation, there are some consequences you need to consider.

We’ve all been there. It’s midnight on a Tuesday and you really need those new sneakers. Four little payments of $50 using Buy Now Pay Later seems so tempting, doesn’t it? But be careful. With a $50 payment here and a $30 payment there, on top of your car insurance being due next week – things can add up quickly.

Buy Now Pay Later is all fun and games until you can’t afford your repayments.

Will using Buy Now Pay Later impact your loan application?

When you apply for a loan, you want to convince the lender that you’re responsible with your money (and theirs). During your application, they will look through your spending habits with a fine tooth comb. If they come across a lot of BNPL purchases, it could hurt your chances of approval.

Want to apply for a loan in the future? It may be time to kick that late-night shopping habit. BNPL platforms are now seen as discretionary spending to lenders. Plus, any outstanding amounts are considered financial commitments. If you want to give yourself the best chance at being approved, pay off your purchases and delete those BNPL accounts before you hit apply.

Can BNPL impact your credit score?

BNPL is all fun and games until you can’t afford your repayments. Most platforms, including Afterpay, charge fees for late payments. They also report late payments and defaults on your credit file. This is recorded as negative repayment behaviour which can be a big hit to your credit score.

Something else to note is that some platforms, like Zip Pay, require a hard credit check to open an account. This is listed on your credit report and can impact your credit score.

So, what can you do?

Using BNPL here and there for a treat or an occasional purchase shouldn’t be an issue. Where the problems come in is when you’re relying on BNPL platforms for your day-to-day purchases. Some tips for using BNPL responsibly include:

  1. Adding any BNPL use into your monthly budget.
  2. Only make a purchase if you’re sure you can (comfortably) afford the repayments.
  3. Use BNPL conservatively.
  4. Applying for a loan? Speak to a broker or a financial advisor to see if your BNPL activity will affect your approval.
  5. Stop using BNPL at least three months before applying for a loan.

How can Gedda help?

Unlike most lenders, we don’t do up-front credit checks here at Gedda. Instead, we assess your loan based on your current financial circumstances. If everything looks good to go and your loan reaches the pre-approval stage, only then will we submit a credit enquiry to make sure everything checks out. If you’re looking to make a big purchase soon, Ged it done with a Gedda Money loan.

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