The Buy Now Pay Later sector is winning-over the youth demographic with the promise of instant gratification, but Sarah Eifermann warns that with every sugar-high comes the risk of a corresponding low.
�Buy Now Pay Later� providers such as AfterPay and Zip Pay have experienced massive growth in popularity, with the number of users jumping from 400,000 to approximately 2 million between 2015 and 2018.
Driven by a simple proposition whereby the Buy Now Pay Later provider pays the merchant on behalf of the customer, allowing the customer to obtain the goods or receive a service immediately while subsequently paying off the debt generally through instalments, Buy Now Pay Later presents a tempting offering.
But as the sector�s breakneck growth continues, mortgage professionals are warning users, particularly in the younger demographic, to be cautious of overdoing it as this could risk effecting their chances of securing a home loan further down the track.
�It�s the layby of our day but in reverse. It�s your forward credit for an item, which I don�t agree with,� said Eifermann.
�In theory, it makes sense. You get the item or service and pay it off over instalments, so you�re actually putting forward your liability.
�This might be ok for someone that manages their money well, if they pay off the item on time and use their mortgage offset account correctly. This way they�re delaying expenses and offsetting more of their savings against their home loan.
�But there�s probably one per cent of people doing that and the rest of them are spending beyond their means,� Eifermann added.
As a result, according to Eifermann, there may also be a stigma associated with using Buy Now Pay Later schemes rather than paying up-front and in-full.
�Utilising this payment method may potentially send the wrong message to a bank.
�If a lender sees a �buy now pay later� provider frequently on a client�s bank statements, that can trigger more questions about their spending behaviours and ultimately may mean they choose to decline the application.
�I would much prefer to see my clients save for the item an demonstrate those good habits.�
If you are concerned about your level of expenditure or your ability to secure a home loan, a conversation with SFE Loans could set you on the right path.
�It�s important to appropriately manage your expenses well in advance of applying for a home loan, that way you can show the bank that you can save and afford to service a mortgage when the time comes,� Eifermann said.
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