At Rapid Loans, one of the key questions we get asked all the time is how our loans are assessed and what we take into consideration. When applying for a personal or car loan, a key factor that affects your eligibility is your credit score. Buy now pay later platforms are soaring in popularity, but do they affect your credit score?
Let’s dive in.
What Is Afterpay?
The payment platform Afterpay has taken Australian shoppers by storm. It’s instant gratification at its finest as it lets you buy something you love and pay for it later in equal instalments, so you can splurge without feeling the pinch upfront or having to wait until payday.
Typically, you pay the first instalment right away and the rest is charged automatically over the next few weeks. However, a lot can happen in that time that can change your circumstances and affect your ability to pay back everything like you agreed, whether it’s a job loss or a sudden natural disaster.
While Afterpay doesn’t charge any interest to use the service, it does cost you if you start missing payments. According to the payment platform, you will be charged a capped late fee of 25% for total orders below $40.
For each order of $40 or above, an initial $10 partial late fee will apply and a further partial late fee of up to $7 will also apply if the payment has not been caught up one week post due date.This approach will continue for all late instalments until the 25% cap is reached or the maximum late fee limit of $68.
How Can Afterpay Affect Your Credit Score?
So, you might be wondering how Afterpay can affect your credit score if they’re not a bank or traditional lender, right? Although it’s not as straightforward as traditional credit arrangements like credit cards or loans, Afterpay can indeed have an impact on your credit score.
It’s important to remember that when you use Afterpay to make a purchase, you’re essentially taking out a small loan for that item. As they do not comprehensively report credit agencies, it’s not going to benefit your credit score. If you make your payments on time, it’s not making much of a difference to your score.
Does Afterpay Do A Credit Check?
Afterpay advises that your credit score will not be affected by using its products as it only runs ‘soft’ credit checks as part of its “pre-approval process” and doesn’t report your repayments to credit reporting bureaus.
Because Afterpay isn’t considered under the National Consumer Credit Code, they don’t have the same legal obligations as more robust financial institutions providing funds. This means that Buy Now Pay Later (BNPL) providers aren’t obliged to check to make sure you can afford your repayments or offer financial assistance when things go wrong, in the same way as credit providers are.
Does Afterpay Report To Credit Bureaus?
As mentioned previously, Afterpay doesn’t report comprehensively to the credit bureaus if you make or miss your payment, however if your account falls too far behind and you haven’t made an arrangement with Afterpay, your account could be sent to a third party debt collection agency. If that happens, your credit score and ability to get credit at reasonable interest rates in the future could still be damaged.Without the same strict regulations adhered to by other financial institutions, your rights as the consumer are a bit different to when dealing with a lender like Rapid Loans, or your bank.
What we do know is that:
- BNPL providers aren’t obliged to be members of the Australian Financial Complaints Authority (AFCA), a free and independent dispute resolution scheme.
- BNPL providers can voluntarily sign up for a BNPL industry Code of Practice but they’re not obliged to do so.
How To Use Afterpay Responsibly
When it comes to using Afterpay responsibly, remember that those payments do add up so always keep track of what you’re spending and make sure you’re staying within your budget. Before hitting that “Buy Now, Pay Later” button, pause and ask yourself if the purchase is truly necessary or if it’s just a fleeting impulse. It’s worth thinking ahead and factoring the repayments into your main budget, and not be too impulsive. Just because Afterpay allows you to spread out payments doesn’t mean you should max out your budget!
It’s easy to lose track of multiple instalments, so staying organised is crucial. Set reminders for your Afterpay payments and familiarise yourself with Afterpay’s terms and conditions so you know the fees and penalties for late payments.
Is Using Afterpay Worth It?
Afterpay claims that its platform is interest-free so as long as you make your payments on time, you won’t be charged any extra fees. While Afterpay doesn’t typically affect your credit score, missed payments can still impact your financial reputation so keep an eye on your payment history to ensure it stays positive.
We all know that if something is too good to be true, it usually is. If you find yourself relying too heavily on Afterpay, explore other budgeting strategies or payment methods that may better suit your financial habits.
Got questions about your credit score, or how credit reporting works at Rapid Loans? Get in touch with us today on 1300 727 431 or customerservice@rapidloans.com.au. We’re here to help!
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