Can Afterpay prevent you from getting a home loan?

Having an Afterpay account doesn’t have to mean that you can’t get a home loan. A lot of people think that you need to close your Afterpay account or risk being declined for your home loan, but using Afterpay doesn’t necessarily have a negative impact on your application. If you keep your repayments manageable (and pay them on time), your home loan application shouldn’t be affected by your Afterpay account.

Does Afterpay affect my credit score?

Buy Now, Pay Later services like Afterpay do not, in themselves, have an impact on your credit score. The only time your Afterpay account could impact your score is if you were to miss your repayments or already have a lot of credit enquiries on your credit history. Just like any line of credit, Afterpay will do a credit check when you sign up for their services, so this credit enquiry will be recorded on your history and add to the number of enquiries already on it, but this isn’t necessarily a bad thing. As long as the amount of debt you currently have won’t impact your ability to make home loan repayments, you should be fine. Afterpay also reserves the right to report negative activity (missed payments) on your credit history. But this is the same for any line of credit you have like credit cards, home loans etc. Even missing payments on your phone or utility bills could end up on your credit history. This means as long as you don’t miss your repayments your credit score shouldn’t be affected by Afterpay. You can find out more about what will affect your credit score here.

Will I need to close my Afterpay account to get a home loan?

There’s no need to close your Afterpay account if you want to get a home loan. Lenders want to make sure that the loan you are applying for is serviceable, so just make sure your expenses (including your Afterpay payments) are manageable and that you’ll still be able to afford the home loan repayments.

For instance, ASIC provided an example under RG209.101 (look at us, getting all technical) to look beyond an applicant’s credit score and history and look for instances where applicants are at a ‘higher risk of entering an unsuitable contract’. The example provided describes a scenario where an applicant with a good credit score and history has two credit cards (aka continuing credit contracts) near their maximum limits and several buy now, pay later services. This applicant could be considered ‘operating at the margins of their available income’ because of their history of revolving credit and increasing net debt position. A lender or credit provider is obligated to make reasonable enquiries to determine whether the applicant can afford repayments if they were to take on additional commitments (i.e. a home loan). Essentially, if you’re reliant on continuing credit contracts, have existing debt or outstanding loans, and/or you look to be relying on unregulated credit like BNPL – your assessment may show that taking on more debt could put you in a worse off position financially, and land you in hot(ter) water down the track. Let’s avoid that, shall we?

When used responsibly, Afterpay can actually be a pretty handy budgeting tool to help you keep your expenses in order. As Afterpay themselves say, it was created as a tool to help Australians budget for expenses without entering into a traditional credit product. If you manage your repayments responsibly you can make purchases more manageable by spreading them out over time with Afterpay’s 4x payment system. It can also be a better alternative than having a credit card as the repayments are generally interest free if you pay them on time.

Only using a debit card for your Afterpay repayments is a good way to ensure you keep on top of your expenses. By using a debit card you can avoid wracking up a huge credit card bill (which could impact your home loan application). Combining this with payment reminders means you can make sure you have enough money in your account to make your payment, so you don’t miss any. But most importantly, the key is to not use Afterpay to purchase things that you can’t afford. A few big purchases can see your Afterpay repayments adding up to big bucks, so keep this in mind when making purchases and try to stick to a reasonable budget.

Before applying for a home loan

To ensure you have the best chance at getting a home loan there are a few things you should do before applying:

1. Check your credit rating

Check on your credit history and credit score. Order a copy of your credit history with either Equifax or Illion and check that all of the information is correct. If there are any incorrect entries you can contact the lender directly to have them removed.

2. Reduce your debt and other expenses

You should take a look at your overall debt position and expenses as well. Try to pay off or consolidate any loans you have and lower your credit card limits where possible. Avoid adding to your expenses because keeping them as low as possible will help make your home loan repayments more affordable.

3. Reduce your Buy Now, Pay Later commitments

Try to get your Buy Now, Pay Later repayments down wherever possible. Try making early repayments (if you can afford them) and refrain from adding to your repayment commitments before you apply for a home loan. This will help to lower your overall expenses and improve your approval chances.

4. Be upfront that you use Buy Now, Pay Later

It’s common for lenders to ask if you use these payment schemes when you’re applying for a home loan. By now, we hope we’ve cleared up the mystery around whether or not you can use Buy Now, Pay Later (you can!). Don’t hide these if your lender asks – it’s part of their responsibility to ensure they have a good grasp of your financial situation and to avoid any surprises if and when they decide to run a credit check.

5. Make your repayments on time

For the repayments that you do have, make sure you pay them on time. Setting a reminder is a good way to make sure you have enough money in your account to avoid late/missed payments.

6. Close unused/unnecessary credit cards

If you don’t need a credit card, or if you have multiple credit cards, consider closing them before you apply for a home loan. Even if you have nothing owing on your credit card, the credit card’s limit is still viewed as credit that is available to you, and this counts towards the amount of debt you have.

There’s no need to stress

The issue with using Buy Now, Pay Later services like Afterpay starts when you can’t afford to make your repayments. As long as you are living within your means and you are able to make your home loan repayments, then you shouldn’t need to worry about your Afterpay account. Just make sure you disclose your current Buy Now, Pay Later balances when applying for a home loan, to help your application process go smoothly.

You can read our other home loan guide articles on serviceability and credit scores to learn more.