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The dangers of buy now pay later for homebuyers

Buy now, pay later services that allow consumers to make purchases and spread the cost of items over several interest-free instalments have grown in popularity over the past few years. However, for homebuyers, there might be risks that they are not aware of.

When lenders assess your ability to borrow, they are going to take a very close look at your entire financial situation. If you’ve been using buy now pay later services, there might be some red flags that could hurt your application.

Here are four things to consider if you’re a home buyer.


Debt-to-income ratio

Using buy now pay later services can increase your overall debt-to-income ratio, which might make it harder to get a loan from a lender. The debt-to-income ratio is used by lenders when they assess your borrowing capacity to make sure you’re not taking on too much debt. When you add your current debt to a potential mortgage, it might mean that you can only borrow a lower amount.


Lower credit score

Buy now pay later might also negatively impact your credit score, especially if you miss any payments or are unable to make payments on time. A lower credit score can make it harder for you to secure a mortgage, and it may also result in higher interest rates and fees. All lenders will look at your credit score and credit report to get an idea of the type of borrower you are and how likely you are to repay a loan.



Buy now pay later can make it easy to buy things, overspend and accumulate debt, which can make it harder for you to save for a deposit on a property. Lenders will look at your level of genuine savings and if you don’t have a certain amount, they might be hesitant to lend. If you are overspending, you will also be hurting your borrowing capacity as banks will assess both your ongoing income and expenses.


Reduced access to credit

If you have an outstanding buy now pay later balance, some lenders may consider this a form of debt and be less willing to lend you money for a property. This can limit your access to credit and make it harder for you to secure a mortgage or obtain other forms of financing.


While these services can be a convenient way to manage cash flow and purchase items that you might not otherwise be able to afford, it is important to be mindful of the potential dangers associated with using them. It is particularly important if you’re looking at making a large purchase like a property in the future.


If you would like to chat to us about reviewing or refinancing your home loans,  or have any other finance and/or property question, the best place to start is to contact us for advice.   We are only an email or phone call away, on 02 8004 2222 or  book an appointment.

Although we are located in Crows Nest, we service clients from St Leonards, Artarmon, Wollstonecraft, Cammeray, Northbridge, Naremburn, Neutral Bay, Greenwich, North Sydney, Waverton to Willoughby and all areas of Greater Sydney.

PS  This article is prepared based on general information. It does not take into account individual financial or property objectives or needs and is not financial product or investment advice.