With Christmas approaching, households across the nation are turning to Afterpay to manage their Christmas spend. The offer of receiving gifts in time for Christmas, then paying them off in small, interest-free instalments seems too good to resist. But what if you knew your Afterpay account could put your home loan application at risk?
Several Afterpay users have recently reported their banks have refused to lend them money. Amy-Louise Parsons told 9 News she used Afterpay for little treats like new lingerie, even though she had enough money to cover her purchases, because she liked the idea of “paying for it slowly, rather than all at once.”
However, a few months after she started using the buy now, pay later service, it became a stumbling block in her $218,000 loan application with the Commonwealth Bank.
"I had to cancel my Afterpay account and send her something saying that I'd paid it off and I closed my account. I actually had to physically cancel my account to get my mortgage,” she explained.
"My credit file was amazing other than that. I didn't have a credit card or anything. I was really shocked about it."
Amy-Louise’s case isn’t an isolated one. The Australian Financial Review recently reported Westpac denied a mortgage application from Lauren Lane, a 26-year-old from Perth, when it discovered she had an outstanding Afterpay debt.
Terri Unwin, Ms Parsons’ mortgage broker, said she’d seen banks scrutinising applicants’ accounts more closely in the last six to eight months. She said even a small Afterpay debt is likely to factor into any lender’s decision today.
"Nowadays, we're down to a deal serving by $5 or $10 surplus per month. So if it is really tight on servicing, those things like Afterpay can make a big difference on whether the deal goes through or doesn't."
She added that the banks see Afterpay as a credit service, even though the company itself and many of its users don’t.
"The banks now look on those facilities as almost an evergreen facility – that at any time, you can redraw up to whatever your Afterpay [limit] is … so they all get included in your ongoing liabilities."
"Afterpay promotes responsible use, we set low spending limits, and we encourage positive repayment behaviour,” a spokesperson for the company told 9 News. “We know we’re not for everyone, but we also know we’re a much better option than a credit card which is a product the banks making these decisions push."
All that might be true, but it’s cold comfort to anyone whose Afterpay use costs them a mortgage. Afterpay may be a convenient service, but using your own funds to pay for anything is always a better option. If you want to grow your savings and rely on services like Afterpay less, call us at Chase Edwards on 1300 854 833. Our finance experts can offer smarter savings strategies that will help you secure a mortgage or simply enjoy more financial freedom.