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Does Using ‘Buy Now Pay Later’ Affect Loan Approval?
October 20, 2020● 4 minute read●
Written by - Jacaranda Team
From buying clothes to getting takeaway, the convenience of Buy Now Pay Later (BNPL) services have taken the country by storm.
According to research from Roy Morgan, nearly 2 million people used BNPL platforms from October 2018 to September 2019. Their biggest customers? Those aged between 25-34 (an age group often just beginning to enter the loans market).
There’s no denying the fact that, in just a few short years, Australia’s payment landscape has shifted rapidly. Yet while these platforms can offer some benefits, when it comes to applying for a loan – they may do more harm than good.
What is BNPL?
‘Buy now, pay later’ services, such as Afterpay, zipPay, and Klarna, allow you to purchase an item and then pay for it later. Typically, when you pay using these services they will split up the full price of the purchase into incremental payments. You then pay this off over a set period of time, similar to a loan.
BNPL services often don’t charge interest on repayments but will deduct late fees for missed payments. Like a credit card, a BNPL account will also often have a set spending limit. In order to pay using a BNPL service, you’ll need to set up an account first. Shops and other retailers must then offer the service as a payment method before you can use it to buy products.
The core appeal of BNPL platforms is that they enable you to keep your money for longer. So, you’re not seeing all your hard-earned cash leave your account from one big purchase.
How will using BNPL platforms impact your loan application?
One of the primary roles of lenders is to review the spending habits and financial commitments of their applicants in thorough detail to understand whether or not they are capable of making loan repayments. As a result, reaching the approval stage of a loan application requires some fine-toothed combing.
Simply using BNPL services might not mean you will be instantly rejected for a loan. However, there are ways these services can set you back and make it harder for you to get approval. While BNPL isn’t a traditional form of credit, you will still be expected to disclose your use of these services on a loan application.
Any payments made to these platforms are deemed as discretionary spending by lenders. So, if you have any outstanding amounts due – for example, $2,000 outstanding on an Afterpay account – lenders will view this as a financial commitment. This can impact how much you are able to borrow and whether your application will be approved.
Here are some of the key ways BNPL platforms could impact your chances of getting approved for a loan:
1. Your credit score
Lenders will review BNPL platforms similarly to how they review a credit card. Every lender is required to complete a credit check on a potential borrower and your BNPL spending can sometimes affect your credit score. With comprehensive credit reporting in place, missed payments to BNPL services can be classified as a negative activity or credit. Consequently, this may be reported to credit bodies and listed on your credit file. This comprises late payments, missed payments, defaults, or serious credit infringements.
If you’re someone who already struggles with making payments as it is, you’ll want to take this into consideration. If you miss payments for BNPL services, some platforms have the ability to inform credit reporting companies on top of charging you late fees.
2. Your expenses
Lenders always look at their applicants’ incoming and outgoing money to understand their financial situation. Naturally, BNPL expenses are one thing they keep an eye out for.
So, say, for example, you have $0 in a bank account but have five or six different BNPL repayments ongoing – lenders are more likely going to question or even doubt your financial reliability. Lenders are far more likely to prioritise applicants who can show they are in a stable position to repay a loan.
3. Your ability to make repayments
As mentioned earlier, lenders will assess your ability to comfortably meet your loan repayments above anything else. If you don’t overuse BNPL services and continue to successfully make your repayments on time, then using these services might not be an issue. However, it’s important to disclose how often you use them.
Put simply, if a lender finds that you are unable to meet the loan’s repayments, you won’t be approved. BNPL debts will factor into their assessments just as other outstanding debts, such as loans or credit cards, would.
What is Jacaranda’s approach to BNPL?
Jacaranda Finance is a responsible online lender. As part of our assessment process, we carefully review the spending history of all applicants. Naturally, BNPL spending falls into this and will be assessed in the exact same way as credit card spending would.
By obtaining a read-only copy of your bank statements, we are able to get a clearer picture of your spending habits, income, and existing financial commitments in order to determine whether or not you will be able to repay one of our personal loans. If we can see you have a regular income and have been keeping up with all your repayments, you stand a good chance at being approved for a loan.
Ultimately, we understand services such as BNPL are there to make life a bit easier. So while we encourage our applicants to be wary of these services, we will always conduct a fair assessment of your situation. This means that if you are using BNPL services within reason, we may still be able to provide you with a loan.
Written by Jacaranda Team