You've been paying for your coffee wrong all this time

If you’re tempted by the ease of Mastercard PayPass or Visa payWave when you’re making a purchase, you’re not alone. In fact, it’s so common that many of us unconsciously pull out our cards to tap, and feel disappointed when smaller merchants do not yet have the ‘tap and go’ option. However, with more and more retailers adopting this contactless payment method, it’s important to consider how using it might affect your chances of getting a loan later.

As you tap or hover your card over a payment machine to pay for your haircut, a new pair of jeans, your dinner, or even an impulse buy, your potential lenders are monitoring your every purchase. Why do they care, and how

does this affect you later?

What is PayPass or payWave?

Launched in 2009 around Australia, this contactless payment method is a way to let consumers pay for any goods or services under $100 without having to use a PIN verification or signature. These transactions are said to be almost twice as fast as cash-handling or traditional credit card or debit card payments as they reduce long queues and prevent issues relating to stationery.

while using PayPass or payWave is so effortless, it so easy to lose track of what and how often you’re spending your money. This in turn can leave you spending more than you can afford, as you have no real budget to work with.

Why do lenders care so much about your personal spending habits?

Your lenders will want access to your personal bank statements so they can check your spending habits to determine the health of your finances. If you are more on the conservative side when it comes to your expenditures, then this will fare well for your home loan approval.

Your recurring expenses reveal more about you than you think. In addition to your current assets and job salary, a home loan application checks your income and expenses. A lender will draw conclusions about your spending habits and savings history to see if you have an ability and a capacity to save, in addition to looking at how much you can afford to service that loan and those repayments.

So when the time comes to apply for your loan, it doesn’t matter how much you have in your bank account or how much you have saved - what matters is whether you can meet the monthly mortgage repayments. This is calibrated using a serviceability calculator.

What is serviceability?

Household Expenditure Measure, or HEM, is used to assess your borrowing power for a mortgage application. In addition to getting information on your family size and location, the calculator monitors your lifestyle and living expenses. This is where your PayWave and PayPass purchases come into play - if you're spending frequently, it all adds up, and you lender may see your spending habits as a liability.

While serviceability is calculated by the borrower’s ability to meet their loan repayments based on how much they are borrowing as well as their income and other expenses, APRA insists that lenders have a duty of care to ensure that a borrower can meet these monthly mortgage repayments.

So what can you do about it?

One of the ways you can take precautions is to pay in cash where possible. This means gauging how much money you’ll need for the week ahead and then taking out the money from an ATM or bank accordingly. While your lender may see that you are taking out $200 a week, for example, they won’t know the specifics of your spending habits.

KEY TAKEAWAY: Cash is king. Take a cue from other people who go to an ATM at the start of the week to take out how much money they think they’ll need over the next seve

n days. When the time comes to apply for a loan, they won’t need to explain their spending habits and their lender won’t ask questions.

Disclaimer: The information provided in this article is not legal or financial advice. It has been prepared without taking into account your objectives, financial situation or needs. Before acting on this information, you should consider the appropriateness of the recommendations, having regard to your own objectives, financial situation and needs. We encourage you to consult a finance professional before acting on any suggestions provided in this article or on this website.