Home buyers warned to beware of BNPL

“We are seeing BNPL facilities are now appearing on client’s credit reports and significantly reducing their credit scores, which was not the case in the past,” Ms Giovinazzo stated.

When BNPL facilities previously did not show up on comprehensive credit reporting, the broker acknowledged that it was a good option to utilise when you wanted to purchase larger items online and pay it off, usually over a number of smaller fortnightly repayments.

“But buyer beware! While it has looked like an easy and convenient way to purchase items, particularly in these times of cost-of-living increases and rising interest rates, you need to consider the impact it has on obtaining credit in the future, as lenders are now treating BNPL very differently,” Ms Giovinazzo said.

That now means “they can now significantly affect your ability to get credit”.

And it doesn’t even require a purchase — Ms Giovinazzo has warned how “when you start an application with a BNPL facility and even if you don’t proceed or aren’t approved, this is recorded on your credit score and reduces your score by approximately 50 points”.

“On average, you start with a credit score in the 700s. A lot of lenders want you to have a score above 600. If you do two or more BNPL credit inquiries, you could severely impact your ability to get a home loan,” she said.

She also raised how ongoing conduct is also now being reported to credit reporting bodies, outlining that “if you have missed a repayment or had conduct issues on your BNPL facility, this could significantly reduce your score, and when applying for credit, you will have to explain the reasons behind the late payment”.

What that means is a lender could decline your application based simply on the conduct of the BNPL facility. 

As well as having an impact on the overall outcome of a mortgage application, Ms Giovinazzo acknowledged BNPL as also affecting borrowing capacity.

“Previously, lenders saw BNPL facilities as an extension of declared living expenses. If you were declaring $500 a month on clothing, and had $500 on your BNPL facility, they would not consider the BNPL facility a liability,” she said.

It’s a different story today: “Now, most lenders are adding it as an ongoing liability, even if you owe nothing on it, which is reducing the amount of money you can borrow.”