Shopping on a pay later scheme can affect your home loan chances

The use of buy-now-pay-later services has surged in recent years, more than doubling between 2018 and 2021, according to Roy Morgan. Meanwhile, credit cards are also used by a lot of Australians.

While both buy-now-pay-later services (BNPL) and credit cards have pros and cons, you might not realise that using them can affect your mortgage borrowing power.

If you regularly use BNPL, lenders might think you’re struggling to manage your finances, and wonder how much they could safely afford to loan you.

If you have a credit card, lenders will assume you’re going to spend up to your limit each month. So if your limit is $10,000, lenders will assume you’ll ‘borrow’ $10,000 each month. That will make it look like you have more debt, and therefore reduce how much money banks are willing to loan you.

And if you miss BNPL or credit card repayments, lenders will be even more concerned.

If you want to maximise your borrowing power you should:

• Reduce or eliminate your use of BNPL services
• Lower your credit card limit or cancel your card
• Make all your repayments on time