Credit has long been a major part of the financial system. While older generations relied mainly on credit cards as their main ways of utilizing credit, the advent of installment payment services like Klarna has more and more young people using credit to buy everyday goods.
“…Gen Z and millennial consumers are the top users of the services, according to PYMNTS’ ‘Buy Now, Pay Later Tracker,’” writes Cheyenne DeVon for CNBC. “Across generations, nearly 60% of consumers say they prefer buy now, pay later over credit cards due to the ease of set payments, the simple approval process and lack of interest charges, according to a PYMNTS survey.”
Despite this popularity, some financial advisors are concerned about their prevalence. The Consumer Financial Protection Bureau previously warned of the “inconsistent consumer protections,” “data harvesting and monetization,” and “debt accumulation and overextension” that can come as a result of using these services. Now, a user’s clip on TikTok has gone viral after she shared another warning about the services.
In a video with over 1.3 million views as of Saturday, TikTok user and Mortgage Loan Originator Tori McConnell (@virginia_mortgage_lender) says these payments can be dangerous when applying for big loans like mortgages.
@virginia_mortgage_lender I also think those types of payments are toxic to begin with, but they should be extra avoided when buying a house #homebuyertips #mortgagepreapproval #valender #howtobuyahouse #klarna ♬ original sound – Tori McConnell Mortgage Lender
“Affirm, AfterPay, and Klarna, and any of those other, like, short-term installment loans are the biggest pain in the a** whenever you are trying to buy a house,” McConnell shares.
“Lenders and underwriters are seeing those as recurring payments on your bank statements, and because of that, they are short-term installments, and we have to source the terms of it, and not a single one of those websites makes it easy at all to get your balance and the terms and any of the information about those deposits,” she explains. “So, please stop using them when you’re trying to buy a house.”
How this will actually affect your mortgage application depends on many factors, experts say.
“…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,” writes DHI Mortgage.
McConnell notes in a follow-up video and in the comments section that how much BNPL services affect your ability to get a loan quickly depends on the loan provider. However, she says lenders are getting stricter about the use of these apps.
@virginia_mortgage_lender Replying to @Theone ♬ original sound – Tori McConnell Mortgage Lender
“In the last two months all lenders have really tightened up approvals & the loan agencies are crushing us with these guidelines,” she explained in a comment.
Still, some said that they did not face issues when buying a house, despite utilizing these apps.
“I had all of those and did not have an issue buying my house at all,” a commenter wrote. “They didn’t mention anything about it at all. I guess it depends on the lender.”
“We didn’t have a single issue buying a house and having used these,” another viewer stated.
However, others countered that using these apps presented them with problems.
“Yup!! This happened to me and instead of closing in 20 days we closed and 36 days,” recalled a user. “…the only reason was because they were large amounts and reoccurring.”
“BIG FACTS! Mine was paid off for months and they STILL gave me hell. Held up my home buying process!! Such a pain!” a second user shared.
“Well too broke to buy a house, so I’m gonna keep using them,” a user wrote.
“We’re using after pay because we CAN’T afford a house,” echoed a further TikToker.
The Daily Dot reached out to Afterpay, Klarna, Affirm, and McConnell via email.
Update 10:55am CT, Sep. 9, 2023: In an email to the Daily Dot, a Klarna spokesperson shared the following: “It is disappointing to hear that a small number of customers may have issue with mortgage applications as a consequence of using Buy Now Pay Later products. Of course, we can’t speak for all mortgage lenders but unfortunately this is an example of how the current financial system and some traditional banks fail to understand the modern consumer. With increased adoption of healthier & more sustainable forms of credit like BNPL growing, our goal is to continue working with mortgage lenders and brokers to help them better understand how our products help consumers to save money and be in control of their finances, so they can be accurately incorporated within their eligibility assessments.”