Does Klarna affect your chances of getting a mortgage?

Picture this: Christmas is on the horizon and things need paying for left, right and center. Presents, food, matching PJs, work dos, secret santas, pantomime tickets, and plenty more. Rather than make sacrifices that means going without, an option to “buy now pay later” (BNPL) could offer you the solution you’re looking for. You can see the appeal, right? 

‘Buy now, pay later’ (BNPL) services such as Klarna, Clearpay and Laybuy offer flexible, interest-free payment options for those who need to buy something now but can’t afford to pay for it at this moment in time. 

With the option to pay off in full within 30 days or earlier, when used responsibly these services can offer a lifeline to those with short-term cash flow problems. However, when used irresponsibly, they can damage your credit score, as well as your chances of getting approved for a mortgage. 

But, don’t worry because we’re here to help you avoid falling into this trap, so keep reading to find out how to avoid the pitfalls of BNPL schemes and keep on track with your plan to save for a home.

The rise of Buy Now, Pay Later

It’s easy to see the attraction of buy now pay later companies with their interest-free solutions offering flexibility and control over spending. With options to defer all, or part, of the payment until a later date, it’s proved popular amongst those who can’t wait to buy and want to purchase their items immediately. 

However, Klarna shares their repayment data with major credit reference agencies, such as Experian and TransUnion, so lenders now have full visibility of your financial habits, including any missed or late payments. Any signs of these will mean you’re less likely to be accepted for credit, such as mortgage applications, so it’s vital to understand how lenders judge your interactions with these services before getting too comfortable with using them. 

How can Klarna affect your mortgage application?

When a lender reviews your mortgage application, their primary concern is your financial risk. This means looking at your whole financial picture to assess how risky you are to lend money to. Part of this includes your relationship with credit. Do you pay your credit off on time? How much debt do you have? Do you use multiple store cards and other BNPL schemes?

If a lender looks at your credit report and sees late or unpaid payments from BNPL schemes, this will be seen as a red flag as ultimately you’re relying on debt in order to manage your finances. Even one missed or late payment on a small purchase still contributes to your overall debt and can be just as damaging to your credit score as a missed credit card payment.

However, it’s not all doom and gloom. If you have a BNPL account and you make all payments on time, this can go in your favour by improving your credit score as it shows you’re responsible with your finances. Just bare in mind that frequent use of BNPL schemes can suggest to lenders that you’re living at the edge of your means, so be careful not to rely on them too frequently. 

Our advice to you

If you’re thinking about getting a mortgage, moving home or remortgaging and you’re using buy now, pay later agents then here’s our advice to you:

Your mortgage adviser will need to report on any active credit, including BNPL balances, when arranging a mortgage for you so it’s important to be completely upfront and honest. 

Our advisers will not judge you for your individual circumstances. We just want you to get the mortgage you need to buy the house you want. 

Get in touch today to arrange an appointment to discuss how we can help. 

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