Popular app that may stop you owning a home

A young Aussie has warned how a popular app could demolish your chances of ever owning a home.

Certain apps could make your chance at getting a home almost impossible. Picture: Supplied

A young woman has revealed how a popular app was among the reasons she was rejected for a home loan.

Sydneysider Lou opened up about how she was frustratingly denied a home loan by all the big banks, despite having more than $100,000 saved, a full-time job and a bright employment future.

The 22-year-old needed the money to buy her first $500,000 home and was shocked that she was knocked back.

While she realised her $38,000 HECS debt would reduce her borrowing capacity, but she assumed she would still be able to obtain a substantial loan.

As it turned out, her $16 Afterpay debt was the thing standing in the way of her and her dream home.

Lou is warning others about the possible risk of Buy Now, Pay Later apps. Picture: TikTok / @livinglouu

“When I was applying with different lenders, I went through a borrowing capacity calculator with them and saw the difference between if I had a HECS debt and if I didn’t,” Lou told Yahoo Finance.

“Because the difference was so big I couldn’t really go with that lender and wouldn’t be able to buy my property.

“With my Afterpay debt, they saw it on my statement and said I needed to close it and send them an email with my confirmation that my account had been closed.”

Lou had never missed a payment in the three years she had used Afterpay and despite having such a small amount to pay back, it made all the difference.

Once she closed her account, she was approved for a $450,000 home loan and was able to purchase her first property – a two-bedroom apartment in western Sydney.

Risk of Buy Now, Pay Later

Compare the Market’s financial expert Chris Ford told news.com.au that despite Buy Now, Pay Later apps seeming fairly innocent, they can have a huge impact on a person’s financial future.

“Any form of credit can spiral and snowball out of control,” he warned.

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She had just $16 of debt on her Afterpay account. Picture: TikTok / @livinglouu

Lou was always vigilant with her Afterpay account. Picture: TikTok / @livinglouu

“It is important to note that Buy Now, Pay Later services are still forms of credit – no matter how easy they are to access.

“Just because they’re small loans, it doesn’t mean they’re necessarily without risk.

“In many cases, people are given access to Buy Now, Pay Later services instantly and don’t realise the financial impacts they can have if not used correctly.”

He revealed that in Compare The Market’s research last month, 18 per cent of Australians surveyed admitted to having Buy Now, Pay Later debts, equating to around one in five people.

“These services have become increasingly popular because they’re relatively easy to access and they allow people to make purchases instantly and worry about the debt later,” Ford said.

“The problem mounts if they are accessed by people who are in vulnerable situations, which

could cause their debt to spiral further and lead to further financial hardship

“There always needs to be transparency about the potential impacts these services can have if they aren’t used correctly.”

He explained that these apps can negatively impact a person’s credit score and hinder their chances of being approved for a home loan down the line.

“Credit scores are a primary factor lenders take into account when people apply for a home

loan,” he said.

Around 1 in 5 Australians have Buy Now, Pay Later debts. Picture: iStock

“This is because they represent your creditworthiness, and lenders will assess a range of

factors – including any debts or credits you have. This can include Buy Now, Pay Later

services.

“Lenders can look at where your credit score sits and immediately gain an idea of the

amount of risk they’d be taking on by approving you for a loan.

“If you’re someone who’s taken out a lot of different loans or lines of credit, it will likely show up on your credit report.

“Similarly, if you struggle to keep on top of these payments, it can be a red flag for lenders.”

However, Ford explained that using these apps does not mean it will always be impossible to get a loan in the future.

“People who use these apps won’t necessarily have a black mark against their name,” he said.

“If you are diligent and make your repayments on time, you can use them without having to worry about hurting your chances of securing a loan in future.

Lots of Australians get themselves into debt. Picture: iStock

“But, if in doubt, always talk to a financial adviser about anything lenders will look out for if

you’re planning on taking out a loan in the near future.”

Ford also highlighted the importance of not relying on these types of apps for everyday purchases.

“We know that some Australians are relying on Buy Now Pay Later schemes or using their

credit cards to cover everyday costs, which is never normally a good idea,” he said.

“We need to protect vulnerable members of our community, but also give them access to the essentials without having to spiral into debt.

“If you find yourself falling behind on your home loan repayments, rent or other bills, try not to rely on these services to catch up

“Instead, see what types of repayment options are available from your lender, insurer or retailer first.”