AfterPay’s $19,000 hit to my borrowing power, and I don’t even have any debt
Key takeaways
- Lenders can take BNPL facilities into account when assessing your application, even when you have no outstanding balance or active purchases.
- An unused but open Afterpay account could reduce your borrowing power: in my case, $950 of available limit had an impact of up to $19,000.
- If you're planning to apply for a home loan, check your credit facilities and consider closing any BNPL accounts you no longer use.
My Afterpay balance is $0. I don't have a single dollar owing and there are no active purchases waiting to be paid off. In fact, I haven't used the account in a couple of years.
But my "pre-approved limit" of $950 means I technically have that much money available to spend, if I want to.
So according to banks, that's a debt that needs to be factored into my budget.
And that seemingly harmless number? I've learnt that it could actually cause a bunch of harm!
Buy now pay later bites
I did some research and found that my $950 of available BNPL credit could reduce my borrowing power (how much banks will lend me) by between $5,000 and $19,000.
That's even though:
→ I don't have any active transactions
→ There are no outstanding debts or payments due
→ I haven't used the account in around a year
When I refinanced my home loan recently, I didn't even think to declare my AfterPay account on my application, because it's nowhere near top of mind.
But when you apply for a loan, you need to declare ALL debt facilities, including ones that don't have any balance owing.
The actual amount my borrowing power would reduce depends on the lender and their criteria.
But that's a pretty wild impact for a debt I don't actually have.
Check your BNPL accounts before you borrow
You might think it's unfair, but it's actually the law. Banks and lenders are legally required to make sure you can afford the loan they offer you in context of your other financial obligations, under the Responsible Lending Act.
We're also one year on from the introduction of Australia's new BNPL regulations, which brought BNPL products into the consumer credit regime and introduced new requirements around licensing, responsible lending and credit reporting.
Louis Tsang, Head of Analytics Consulting & Insights at credit reporting agency Experian, says this data "may help inform lending decisions… as the first year of BNPL regulation has provided greater visibility."
"For lenders, considering BNPL enquiries alongside other forms of credit may contribute to a broader view of observed borrowing behaviour," he says.
Experian data also found that Australians who used BNPL were more likely to have "prior stress indicators", financially speaking.
Check your BNPL accounts before you borrow
My Afterpay account has made me rethink what I consider to be "debt".
I had no balance, no repayments and no intention of using the account. But because I still had $950 available to spend, it could potentially affect how much a lender was willing to let me borrow.
And I suspect I'm not the only person with an old BNPL account sitting around in the background.
If you're planning to apply for a home loan or refinance, look at your available limits and any active balances, and consider closing accounts you no longer need.
When it potentially translates into thousands of dollars less borrowing power, it's worth checking your BNPL accounts before you submit an application.
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