Why using BNPL makes it harder to get a home loan

Credit repair firm director outlines the risks of buy now pay later

Why using BNPL makes it harder to get a home loan


By Jayden Fennell

Many consumers are unaware of the negative impact that a buy now pay later service can have on their credit score and potential home loan applications, according to a credit repair firm.

Coffs Harbour-based company Clear Credit Solutions director Peter Cole (pictured above) said credit reporting bodies have been regarding applying for a BNPL services as potentially negative credit behaviour, so this could put downward pressure on a person’s credit score.

“As someone who’s on the front line of credit repair, I can tell you that applying for multiple BNPL services is even worse and is becoming a growing problem,” Cole said.

“I’m starting to see more and more instances of consumers applying to a broker for a home loan [and] the broker discovering the client has bad credit and referring them to Clear Credit Solutions and the client being shocked to learn that a BNPL account has damaged their credit score.”

Clear Credit Solutions has just been announced as the winners of the ProductReview award for Best Credit Repair Company four years in a row. The company prides itself on being the place to turn for credit solutions.

Cole said according to the ASIC BNPL industry update report released in November 2020, 21% of BNPL users surveyed missed a payment in the last 12 months and 55% had used at least two different BNPL arrangements in the last six months.

“This caused damage to their credit potentially without being aware this information was being reported and the problem is being caused by the marketing practices of BNPL companies which seem to promote their offering as a modern form of layby rather than a credit product,” he said.

“Technically, BNPL companies are right because their products are not regulated by the National Consumer Credit Protection Act. Realistically though, BNPL is credit in all but name, because when a consumer buys now and promises to pay later, they’re effectively taking out a loan.”

Cole said credit reporting bodies had also taken this view which was why they regarded BNPL use as potentially negative credit behaviour, reporting BNPL accounts on consumers credit files even though BNPL does not fall under the typical definition of “credit”.

“My strong view is that the government should place BNPL under the National Consumer Credit Protection Act. Failing that, BNPL companies should be required to disclose to consumers that signing up for a BNPL service could damage their credit score,” he said.

“I am aware that various leaders in the finance industry have been speaking to the federal government and currently participating in the government-led consultation process about regulating the BNPL industry. Hopefully the government will introduce common-sense regulation, that can only lead to better outcomes for both brokers and consumers.”

Melbourne mortgage broker Andrew Rennie understands the importance of his clients understanding their credit score. He reaches out to employers such as offices and car dealerships offering to assist their employees with any financial questions or queries.

Rennie will sit in a common area, such as the staff lunchroom and invite employees to sit down and have a chat with him about their finances. He said the program was designed to give people piece of mind about their finances.

In November, Mortgage Professional Australia reported the Australian government was set to get tough on BNPL services by asserting that consumer protections were inferior to other credit products and posing potential harm to customers.

Borro founder and senior mortgage broker Cara Giovinazzo told MPA that BNPL had become a convenient way to pay for everyday living expenses.

“Unlike applying for a credit card where an issuer typically assessed an applicant’s income against the minimum repayment on the facility, BNPL facilities were quick and easy to set up. With inflation running high, this could encourage people to spend more than they would have done if they didn’t have access to the service,” Giovinazzo said.

“The repayments can end up being a lot higher than the equivalent amount owing on a credit card too, which can cause financial stress. From a mortgage perspective, borrowers needed to be aware that applications for BNPL facilities and repayment conduct did affect individual credit scores and this has impacted people’s ability to get finance as more begin to show up, we expect borrowing capacity to be affected further.”

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