Does a Buy Now Pay Later arrangement affect your home loan application?

Any financial commitment will influence your borrowing capacity, even if you’re meeting your payments. The Buy Now Pay Later scheme is designed to entice people to spend money they might not have. Relying on these agreements will have a significant impact on your finances, and might also affect your credit rating and ability to borrow in the future.

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Tips to secure a successful home loan application

1. Review your credit rating

Evaluate your credit history as well as your credit score. Check your credit history by obtaining a copy to confirm that all of the information is correct. If you find any errors, contact the lender directly to get them corrected.

2. Minimize your debt and other living expenses

You should also evaluate your entire debt situation and expenses. Pay off or consolidate any loans you have and, if possible, reduce your credit card limits. Avoid increasing your expenses because keeping them as low as possible will help you pay off your home loan faster. You will need to disclose all information about every debt that you have because this plays a big role in deciding how much you can borrow.

3. Consider reducing your Buy Now Pay Later commitments

Attempt to reduce your Buy Now Pay Later payments, or cancel it. Before you apply for a home loan, try to make early repayments (if you can afford it) and avoid adding to your repayment obligations. This will help you save money overall and increase your chances of getting approved.

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4. Repay your obligations on schedule

Make sure you fulfill your repayments, if you have any, on time. Setting a reminder is an excellent way to assure that you have sufficient funds in your account to avoid late or missed payments.

5. Close unused/unnecessary credit cards

Consider deactivating credit cards that you don’t need before applying for a home loan. Even if you have no outstanding balance on your credit card, the credit card limit is still considered available credit, and it is factored towards your total debt.

Home loan application success

As you apply for a home loan, lenders want to confirm that the loan you are applying for is serviceable, so just make sure your expenses are manageable and that you’ll still be able to afford the home loan repayments.  Banks and lenders may inquire about your typical spending when you apply for a home loan (including using BNPL, if you do) to ensure you can afford your future home loan payments. This is why using BNPL services can be quite tricky, as it very easily prompts over-spending which is unsafe because it can result in you being unable to fulfil your repayments on time and in full.

You can avoid accumulating large credit card charges by using a debit card – which could impact your home loan application. The most important thing is to stick to a realistic budget and avoid using Buy Now Pay Later services to make purchases that you can’t afford. Just make sure you disclose your current balances and all of your debts when applying for a home loan, to help your application process go smoothly.

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Disclaimer: Information included in this post is of general nature, it has been prepared without taking into account your specific situation. It is not intended to be and does not constitute financial advice, investment advice, trading advice, or any other advice. You should not make any decision, financial or otherwise, based on any of the information presented here without undertaking independent due diligence and consultation with a professional accountant or financial adviser.

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