In recent years, one of the biggest changes for consumers has been the move towards ‘buy now, pay later’.
In years gone by, most people simply purchased with credit cards, and before that, it was using lay-by. Things have changed dramatically in the past five years and now, we’re seeing more Australians turn to buy now, pay later services.
Before you start buying with buy now, pay later services, it’s worth asking yourself if it’s a good idea or if will it hurt you down the track? Especially if you’re wanting to get a loan.
Advantages
The largest segment of the market that uses buy now pay later services are millennials. Many have grown up with this type of payment being an option and most love the ability to get something quickly and easily.
Another big advantage is how fast it is to set these services up. Unlike a credit card, that requires a number of checks to take place and a long application process, involving a credit check.
Another appealing feature is the fact that buy now, pay later companies don’t charge interest. Credit cards attract some of the highest interest rates and this makes them far less appealing.
Disadvantages
Buy now, pay later services work by paying off your purchase in a series of instalments. They generally only charge fees when you miss payments. However, there is evidence to suggest, these late payment fees make up a huge portion of their profits.
These companies also don’t let you choose the schedule to make the repayments. That means paying off your debts, might not fit in all that well with your next paycheck and could cause you to miss a repayment if you’re not careful.
One of the other major grey areas surrounding buy now, pay later services, is exactly how lenders will assess your application for finance if you have a history of using these types of products.
Generally speaking, buy now, pay later companies don’t impact your credit history, but you can be sure that lenders will be closely monitoring your bank statements. If you have a long track record of not managing your money well, and using various forms of credit that you don’t pay back, this will be a red flag.
Similarly, some lenders might even assess the money you owe to these companies, as a line of credit, which would impact your borrowing capacity.
One of the other key tests that lenders will look at, is whether you have been able to put together any genuine savings. This means having a track record of saving money or paying off good debts over a long period of time. To a lender, this suggests you are a person who is able to manage money well, and therefore a strong chance you will pay back the money they lend to you.
If you’ve been busy adding to a growing pile of debt over the Christmas period, this might be the perfect time to get you financials in order – especially if you are looking to get a home loan this year.
Consider cutting back on your spending, reducing your credit card limits and stop buying with buy now, pay later services. Start saving money and depositing it into a savings account and your odds of getting finance approved when you want to buy a house will dramatically improve.
If you have a question or would like more information, please contact…
Steve
Mobile 0423 894 864
steve@bettermoneylenders.com.au
Brett
Mobile 0428 156 680
brett@bettermoneylenders.com.au
