Generation AfterPay: Does Buy Now Pay Later affect your credit score?

You may have recently gone overboard with your Afterpay spending during lockdown, but will these accounts affect your future spending? James Paras investigates.

The Buy Now Pay Later (BNPL) business model has changed the way we shop. Australia has been at the forefront of this financial revolution with companies ZipPay and AfterPay launching in 2013 and 2014 respectively. In just eight short years, Afterpay Limited was acquired by tech giants Square, inc. for an estimated $39 billion dollars, further underlining how popular the payment method has become. 


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The BNPL model offers its users the option of owning items immediately and paying off the full amount in instalments. The repayments are interest-free but heavy late fees are a consequence of missing an instalment. Seen as an alternative to using a credit card, BNPL companies offer their services with little background information for applicants needed. 

However, concerns have been long-standing over the BNPL scheme. A report from the website MOZO highlights that 67% of AfterPay’s business is being conducted by Gen Z’s (9-24 years old) and Millenials (24 to 40 years old). MOZO also reported in their 2020 research that nearly 70% of people now feel “financially stressed” by the purchases they have made with BNPL. 


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With this in mind, just what are the personal financial impacts of BNPL services? Can the use of AfterPay and ZipPay impact your borrowing capacity for a home loan?

Declan Lewis is a Mortgage Broker for Australian Mortgage Brokers Alliance in Pyrmont, Sydney. Specialising in business lending, Declan also regularly processes applications for home loans. When asked if Afterpay and ZipPay repayments are considered on home loan applications, Declan said “repayments to Buy Now Pay Later accounts definitely come into consideration”.

“Any open line of credit will affect your borrowing capacity, but it’s how you repay the outstanding amount that can make or break your loan application.”

Declan explained that dishonour fees and late repayments are the most detrimental to your credit score. “If there are more than four dishonours a month it’s usually rejected”. 

However, Declan far from condemns BNPL. Instead, he stresses the importance of sensible money habits for young adults hoping to enter the housing market.

“You have to be disciplined when saving for a house deposit, this is the biggest barrier I see for young people,” Declan said.

“I actually worked at ZipPay at one point, and they really want the best for their customers.”

Declan highlighted that BNPL providers offer an alternative to traditional credit cards, “if you use it sensibly, you can avoid the harsh fee’s usually associated with some other credit card companies”.

The recent boom in the housing market has only been made more competitive by the COVID-19 pandemic, with potential owners often entering a bidding war just to get their foot in the door.

So, yes, BNPL schemes do affect your borrowing capacity. However, it’s not all doom and gloom as Declan highlighted. Just like with any other bill or loan, if you pay back the amount on time and in full, you can avoid hardship.

It’s not something you could be thinking about now, but healthy and sensible spending habits can set you up for the future.

Feature Image by Dylan Gillis via Unsplash

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