Buy now pay later (BNPL) is the kind of credit you get when you walk into a store and buy goods without having to part with any cash. Usually offered in High Street fashion stores, popular furniture retailers and suppliers of electrical goods, you get to the counter to pay for your goods only to be asked if you want to save 20% on your purchase by opening a “such and such account”. Often, these companies entice you in with a discount on your purchase or 0% interest for X amount of months as an added incentive for you to buy. For them, it cuts down on the amount of window shoppers, securing more purchases and for you, it means you don’t have to wait until you can afford it.
The trouble is, many of us take advantage of this seeing it as a way to somehow save money. This is all well and good if you pay the sum up at the end of the interest free term but not everyone has the means to do so and therefore interest becomes payable.
BNPL has become a headline story over the past few weeks for a number of reasons but our primary reason for writing this article was to discuss how this might affect your mortgage application, especially given recent changes to how this data is reported.
Credit Agencies Could Use this Data
Known as BNPL, this type of finance is also referred to as interest free credit or store cards. Traditionally, people have amassed a fair amount of debt using this kind of credit, using it to fill a gap when funds are low but, as long as you pay them back on time, they didn’t really affect your credit score. Now that all looks set to change as the first credit reference agency, TransUnion, announces that they will shortly be including this data on credit reports.
How Could BNPL Debt Affect You?
With an almost 2000% increase in traders now offering buy now pay later deals since 2020, not only are people getting themselves into more debt, more so since the start of the pandemic, but with the announcement of them being included on credit reports, it could also affect your mortgage application. At the moment, it is only TransUnion that have announced this move but it may not be long before all credit reference agencies follow suit.
Neil Kadagathur, CEO and co-founder of consumer lender Creditspring calls it a “welcome move” in making pay later a recognised form of borrowing.
“The next step is for all credit reference agencies to be reporting on this data, and for [buy now, pay later] providers to be introducing checks with credit reference agencies, along with using other data sources such as open banking, to accurately assess a person’s affordability before they lend.”
If this is the case, and all credit reference agencies start to include this data, it means that you will have to be mindful of it when applying for a mortgage. When a lender looks at your credit file, it will see any debts that you are liable for and this could reduce the amount you are able to borrow. Your options are to settle the debts before you make your application or to deduct the amount owed from the amount you will be able to borrow for your mortgage.
If you would like to discuss a mortgage application and how the above news about buy now pay later could affect you, get in touch. We would be only too happy to offer our expertise and advice. You can contact us on 01934 756717