Considering the rising cost of living, it’s no surprise that many of us are reliant on “Buy Now Pay Later” services – but does Afterpay affect your credit score?
The market for Afterpay’s ‘reverse layby’ model cannot be overstated – especially in the midst of a global pandemic. Founded in a suburban Sydney garage in 2014, Afterpay as we know it is now regarded as one of the pioneers of the ‘Buy Now, Pay Later’ (BNPL) payment platforms that have since taken the world by storm. In theory, it’s as simple as receiving your goods, and paying them off later in four fortnightly, interest free installments.
However, a growing number of financial experts have expressed concerns linked to consumers relying too much on BNPL platforms like Afterpay to support everyday living expenses and overspending. While using Afterpay is quite safe when compared to the hefty interest rates and fees linked to credit cards, personal loans, and payday loans, if you miss a repayment, you’ll be slapped with a late fee. While it’s also worth noting that lending providers pay careful attention to payments made via BNPL platforms on your bank statements when applying for a loan, does Afterpay affect your credit score?
The Relationship Between Your Credit Score And BNPL
While Afterpay reserves the right to check your credit score, it generally doesn’t unless your identity checks present any red flags. However, if you fail to meet your repayments, Afterpay reserves the right to report any negative financial activity such as late payments, missed payments, defaults or chargebacks, to credit reporting agencies. This information can be logged on your credit report for up to seven years, and can prove tricky to navigate further down the track if you want a mortgage or other sizable loan.
As long as you’re using Afterpay in a responsible way and making your payments on time, then your credit score and history shouldn’t be affected directly, but it can encourage a debt spiral for consumers who have access to seemingly small amounts of spare cash. The more you shop and show that you can successfully pay back your purchases on time, the higher your approved spending limit goes, and can therefore provide a dangerous window of opportunity for those who are prone to overspending.
If you’re considering applying for a loan in the not so distant future, buyer beware – “Buy Now, Pay Later” platforms can attract the wrong kind of attention from the banks. Many lenders still regard these types of payment services as a line of credit – essentially, you’re still able to borrow money that you don’t have. Alongside your other debts or expenses, lending providers will take your Afterpay purchasing behaviour into account to form an overall risk profile when deciding whether or not to issue you with a pre-approval.
While there’s now a medley of other “Buy Now, Pay Later” platforms trying to ride the wave of Afterpay’s success, such as ZipPay, LatitutePay and Klarna, even the big banks are trying their best to keep up, with the Commonwealth Bank of Australia recently announcing its own digital product. The surprising announcement was designed to allow customers to make purchases between $100 and $1000, and repay the money in four interest-free fortnightly installments – just like Afterpay.
For shoppers, the ease of using the platform is one of the most appealing platforms. To sign up, all you need is to be aged over eighteen, hold a valid Visa or Mastercard debit or credit card in your name, and to be deemed capable of entering into a legally binding contract. Users sign up via a verified email address, phone number and photo identification. Once this is approved – which is almost instant – users are free to get busy shopping either online or instore with selected retailers.
If you are ready to “level up”, get financially fit and take a step back from BNPL platforms like Afterpay, then it’s never too early to seek professional financial advice. Whether your next goal is to retire early, take a gap year or purchase a home, George Samios and the team at Madd Loans are ready and waiting.
Partnering With The Home Loan Professionals
Navigating the complex world of home loans has long been regarded as stressful, frustrating and time consuming – but the good news is that it doesn’t have to be.
Since their inception in 2012, the team at Madd Loans have worked tirelessly in providing over 2,000 Queenslanders with finance options to help turn their dreams into reality. With the entire brand being built on referrals, owner George Samios takes great pride in making the loan process both fun, educational and stress free – and he has a swag of awards to prove it.
If thinking about your financial future strikes a chord with you, then it might be time to speak to a professional. Whether you’re chasing mortgage solutions or a financial fairy godmother, the team at Madd work together as a collective to turn your goals into reality.