Buy Now, Pay Later and Mortgages – The Truth

Buy Now, Pay Later and Mortgages – The Truth

Short term, interest-free payment plans are on the rise offering consumers an attractive option and time to pay for their goods with no extra costs.

However, they also come with the potential to give a nasty shock when it comes to mortgage applications.

Clearpay, Klarna, Layby and PayPal all offer buy now, pay later (BNPL) or payment instalment schemes, making it easy and extremely appealing to consumers to delay payments till payday or to split the cost of an indulgent treat in interest-free chunks.

After all, who wouldn’t want to split the cost of an expensive purchase into three or four easier to manage interest-free payments? Or to delay paying for an order for another 30 days’ time, giving time to make sure all those clothes fit before paying for them? Harmless – right?

To put it simply, no!
As the old saying goes – when something seems too good to be true, it generally is!
If you are planning on applying for a mortgage in the foreseeable, you should be very wary, check the terms, and if in doubt avoid using them prior to mortgage applications.

Currently, many mortgage lenders view short term loans, payday loans and BNPL options as a ‘red flag’ when looking at how a prospective buyer manages their cash flow month to month. Additionally, repeated reliance on these schemes – which is commonplace due to the very nature of the cycle – can negatively impact their application.  Regular usage of these different options could be interpreted as the applicants having poor money management skills or might even indicate financial difficulties – both of which would make it harder to obtain a mortgage.

Klarna for example doesn’t tend to update credit records when payments are met, but does leave a mark if payments are missed – so using and paying off correctly and on time doesn’t necessarily help your credit file or borrowing eligibility in a good light.

The key problem with BNPL is that it is easy to fall into difficulty and overstretch yourself financially.  Once you miss a payment, the penalties start to add up and the balance owed increases, as does the negative impact on your credit score and this can impact your credit file for up to 6 years.

According to a recent study carried out by Which?, 20% of shoppers admitted to spending more when using BNPL and more than 50% admitted that these schemes contributed to increased personal debt levels.
Furthermore, one in ten consumers said that they chose to use buy now, pay later schemes as they had already reached their credit card limits and no other options were available to them.

It is recommended that BNPL plans are paid off and not used at least twelve months prior to applying for a mortgage to show that you can manage your finances.

Help is at hand!
However, all is not lost! At Best 4U, we work with a wide range of mortgage lenders and although traditional high street banks may decline applications for those regular users of Klarna, Clearpay etc, it is very possible that there will be a lender who will consider your application.

If you have used Klarna, PayPal, Clearpay or Layby recently and you are thinking of applying for a mortgage, please get in touch with us to discuss your options.

Above all else make sure all payments are on time and keep an eye on your credit file. We use checkmyfile as this gives a view of all the credit companies – https://www.checkmyfile.com/?tap_a=21902-1ce0c8&tap_s=159859-02d455&ref=tap

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