As the festive season approaches, the temptation to turn to Buy Now, Pay Later (BNPL) services such as AfterPay, Zip and Pay in 4 skyrockets. As we try to keep up with the season of joy, connection and giving, these services make it easier than ever to fund festive celebrations – but it’s important to understand that these platforms can leave you with a lingering case of debt lag – and even jeopardise your mortgage review or application.
The Christmas Hangover You Weren’t Expecting
The lead-up to Christmas can feel like a perfect storm of expectations:
- Gifts for loved ones that are thoughtful yet increasingly expensive.
- Food to make Christmas Day an unforgettable feast.
- Holidays or celebrations to recharge your batteries, and perhaps those of your family.
Faced with these pressures, it’s easy to make impulsive spending decisions. BNPL platforms add to the temptation, offering the ability to buy everything from hampers to surf lessons, hotel bookings, or even facials—all without paying a cent upfront.
While it might seem like a lifesaver during the festive rush, BNPL services can leave an unwelcome footprint when it comes to your financial health—especially if you’re planning to apply for or review your mortgage.
Why BNPL Could Hurt Your Mortgage
Lenders are now more vigilant than ever, thanks to stricter lending requirements and a focus on responsible borrowing. Even small BNPL debts can raise questions about financial habits and repayment capabilities.
Here’s why:
- BNPL as Debt
Whilst BNPL services aren’t technically classified as credit (yet), lenders often treat BNPL instalments as recurring debt. Even a small BNPL balance can inflate your monthly expenses and negatively impact your debt-to-income (DTI) ratio. - Spending Habits Under Scrutiny
Using BNPL platforms frequently or for everyday essentials like groceries or utilities signals poor financial management to lenders. This can be seen as a warning sign of overextension or frivolous spending. - Missed Payments & Credit Scores
Missed BNPL repayments can hurt your credit score and signal financial instability. With more than 21% of Australians missing a BNPL payment in 2020 (as reported by ASIC), it’s a common issue. Australia has one of the highest rates of BNPL usage globally, so lenders are cracking down. - BNPL Regulation Changes
From March 2024, BNPL providers are regulated like credit products, requiring them to assess borrowers’ ability to repay. This added scrutiny could make your BNPL history even more relevant to lenders.
Tips to Avoid the Debt Lag of the Holiday Season
The festive season doesn’t have to lead to financial regret. Here’s are some tips to help you enjoy the festive season without jeopardising your mortgage application:
- Set a Budget
Plan your Christmas spending carefully, including gifts, food, and holidays. Stick to what you can afford without relying on BNPL. - Reduce BNPL Usage
If you’re applying for a mortgage soon or planning to refinance or review your loan, avoid BNPL purchases entirely in the months leading up to your application. - Pay Down Existing BNPL (and other) Debts
Clear outstanding balances to reduce your financial liabilities. - Avoid Impulse Purchases
BNPL makes it easy to overspend on non-essentials. Focus on meaningful gifts and experiences that won’t strain your wallet. - Prioritise Savings
Show lenders you’re financially responsible by maintaining consistent contributions to your savings account.
Swap Silly for Smart this Festive Season
The convenience of BNPL platforms might help you breeze through Christmas shopping, but the long-term costs can far outweigh the short-term relief. Debt lag can leave you struggling to recover well into the new year—and if you’re planning to apply for a mortgage, it could significantly impact your borrowing power.
This Christmas season, take control of your spending and prioritise your financial well-being. By making smart choices now, you can start the new year on a strong footing and keep your homeownership dreams firmly on track.
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