If you’re planning to buy a house, you’ve probably heard that lenders look closely at your finances to decide if they’ll give you a mortgage. What you might not realise is that using things like Klarna, GoCardless, PayPal Credit, or other “buy now, pay later” (BNPL) services could have an impact on their decision.
Let me break it down for you so you can see how these services work and what you should watch out for.
What Are Buy Now, Pay Later Services?
BNPL services let you split payments or delay paying for something you buy, which sounds handy, right? Instead of paying the full price upfront, you can spread it over weeks or months. It’s not just Klarna—there are loads of other companies like PayPal Credit and Clearpay, that work in a similar way.
While these services can make life easier when used carefully, they might cause problems when it comes to applying for a mortgage.
So, Does It Matter If I Use Klarna or PayPal Credit?
The short answer: it can. Here’s why:
- Lenders Will See Your BNPL Use
These services often show up on your credit report. Even if you’ve paid everything on time, a mortgage lender might notice that you’re regularly using them. They could wonder if you’re relying on these services to keep up with your spending, which might raise concerns.
- It’s Debt, Even If It’s Small
BNPL payments count as a form of borrowing. Lenders look at all your financial commitments when deciding how much they’re willing to lend you. If you’ve got a lot of BNPL payments, it might reduce the amount you can borrow for a mortgage. - It Could Signal Financial Stress
Using these services occasionally isn’t a big deal. But if you’re relying on them frequently, it might suggest to lenders that you’re struggling to manage your money or living beyond your means.
- Missed Payments Are a Red Flag
If you miss a payment on Klarna, PayPal Credit, or any other BNPL service, it could harm your credit score. Lenders don’t like seeing missed payments because it makes them think you might not pay your mortgage on time either.
How Is This Different from Payday Loans?
Payday loans are much worse in the eyes of mortgage lenders. Even if you’ve paid them back, lenders often assume that you were in financial trouble when you took out a payday loan. Many mortgage companies outright refuse to lend to people who’ve used payday loans in the past, so it’s best to avoid them altogether.
What Should I Do If I’m Using Klarna or PayPal Credit?
If you’re already using these services, don’t panic! Here’s how you can make sure they don’t mess up your chances of getting a mortgage:
- Keep It to a Minimum
Try not to use BNPL services regularly. If you do, stick to small amounts and pay them off quickly.
- Pay on Time
This is crucial. Make sure you never miss a payment, as this can hurt your credit score and make lenders nervous. - Check Your Credit Report
Take a look at your credit report to see what lenders can see. If your BNPL activity shows up, make sure everything is correct and up to date. - Clear Any Outstanding Debts
If you’re planning to apply for a mortgage soon, it’s a good idea to pay off any BNPL balances so they don’t count against you in your affordability assessment. - Speak to Clever Mortgages
A broker can help you find lenders who are more flexible if you’ve used BNPL services. They’ll know which lenders care about this kind of thing and which don’t.
Final Thoughts
Using Klarna, GoCardless, or PayPal Credit every now and then won’t ruin your chances of getting a mortgage, as long as you’re responsible. Lenders care more about your overall financial health—things like your income, savings, and whether you pay your bills on time.
If you’re serious about buying a house, now’s the time to get your finances in order. Limit your use of BNPL services, keep up with repayments, and check your credit report. That way, when the time comes to apply for a mortgage, you’ll be in the best possible position to get approved.
If you’re unsure about any of this, feel free to ask for advice. Clever Mortgages can help you navigate all these details and make sure you’re on track to get the keys to your new home.
