Digital wallet services like Afterpay and ZipPay enable shoppers to buy-now and pay-later at the checkout. You may have started to see their logos when you get to the checkout section when shopping online or even in-store.
What is a digital wallet?
Touted as the ‘next generation of payments’, point-of-sale credit providers such as AfterPay and ZipPay enable shoppers to make purchases and receive the goods whilst paying off the cost in regular repayments.
Both providers claim their service is interest free, however they charge set fees for missed repayments and late payments.
Setting up your account is geared up to millennials who love a bit of digital disruption. Just select the pay-later option at checkout, set up an account and link it to your debit or credit card and voila, instant approval!
Depending on the provider, equal repayments will be deducted from your account over the coming weeks, fortnights or months. This, in theory, should be fine if linking to a debit account. But when you’re using a credit card to get more credit – that where things can get seriously messy.
And the banks are watching.
Buy what you want today, pay for it later seems like a godsend, but it’s just more credit. You’ll now need to disclose what you owe when applying for a home loan.
Pay-later services are a credit facility
Just like applying for a credit card, pay-later services go through a similar approval process and operate under the same credit licensing conditions as banks. So, if you don’t make the repayments, your credit history will also be impacted. To learn more about how your credit history can impact your home loan approval, read our article Home loans and credit scores
You’ll need to disclose your pay-later debts on your home loan application
Just last month, Westpac and its divisions, Bank of Melbourne, St George Bank and BankSA, advised that borrowers will need to disclose these short-term buy-now, pay-later loans so the bank could better assess borrowers’ loan serviceability when applying for a home loan.
Borrowers will have to provide detailed evidence of the amount owing and the required repayments.
If you are a regular user of pay-later services, then your bank statements will show regular transactions to the providers. The banks have already started analysing this data and requesting the debt be paid out before a home loan is approved.
Where possible, reduce your debt, don’t increase it. Pay-later should be used as a one-off situation, not regular and everyday transactions, particularly if you’re linking it to a credit card.