Resources / Understanding Credit / Buy-Now-Pay-Later
Retail Payment Installments Can Affect Mortgage Loan Approvals
If you've made any recent online purchases, you've probably seen the option at checkout to "Pay in four interest-free installments!" This is a common payment option known as Buy Now, Pay Later (BNPL). BNPL for online transactions has grown in popularity in recent years and has even been made available for use at some brick-and-mortar stores.
Although these options seem harmless, there can be an impact if you utilize them while applying for a mortgage. As these services become more widely available, it's important to understand how they can impact your mortgage loan application.
Using BNPL Could Impact Your Mortgage Loan Application
The first thing to keep in mind is that, contrary to popular belief, BNPL may not improve your credit score. Instead, banks and lenders treat BNPL forms of credit as ongoing debt, which can impact your debt-to-income ratio (DTI). DTI is one of several factors used to determine loan eligibility.
Other Factors That Could Affect Your Loan Approval
  • Having a low credit score or pressing debt, in addition to BNPL use
  • Having multiple BNPL loans out simultaneously or within a short period of time
  • Using multiple accounts with different BNPL companies
  • Taking out a BNPL during the mortgage application process
  • Having a large monthly payment amount while applying for a mortgage loan
If you decide to use BNPL, be sure to read the terms and conditions and all fine print to understand how the credit will be treated. Above all, make your payments on time or early before applying for a mortgage loan. If you have questions about BNPL and how it might impact your loan application please contact your DHI Mortgage Loan Originator.