Loading Ms Scott advises customers to "be as conservative and as smart as you can be" and avoid using Afterpay and be more disciplined with their spending in the months leading up to applying for a home loan. Managing director of Home Loan Experts Otto Dargan also warned that Afterpay raises a “question mark when combined with other factors” for banks because it can give the impression the customer does not have “large amounts of cash on standby and they are living paycheque to paycheque”. "Afterpay creates questions, such as is this person living beyond their means," he said. "If people are using services like Afterpay they should see it as a short term purpose, don't rely on it as it's not sustainable." Experian's head of credit services for Australasia, Poli Konstantinidis, said it's important that consumers know “that having a ‘buy now, pay later’ account may have an impact on their existing credit accounts and credit history."

"In particular where it’s being paid direct from a credit card, as the way you use both credit cards and ‘buy now, pay later’ products is part of what you’re assessed on when applying for credit." At a conference in Melbourne last week, Afterpay chief executive Anthony Eisen said the company's own research does not reflect this portrayal of its customers as a potential credit risk. "The most compelling statistic I get out of that is that 70 per cent of respondents who use Afterpay say they’re using credit less. Our customers aren’t low socio-economic. They are customers who don’t want to use credit cards and fall into a debt trap for their lifestyle purchases,” he said. UBS initiated its coverage of Afterpay last week with a 'sell' recommendation and a 12 month target price of $17.25. Afterpay shares closed 7 per cent lower at $29.65 on Friday. A survey by the investment bank found that buy now, pay later users tend to have more types of debt and are more likely to have been declined for credit cards in the past.

The report also raised queries about further regulatory issues that could impact on Afterpay like the prohibition on merchants passing on the cost of its service to users. On Friday, news broke that the Reserve Bank will consider intervening in the rules that stop retailers from surcharging customers who use buy now, pay later schemes, which sent Afterpay shares tumbling. In the annual report of its Payments System Board, the RBA last week said a review next year would look at "no surcharge" rules imposed by BNPL operators. "BNPL services are relatively expensive for merchants to accept and they usually restrict the ability of merchants to apply a surcharge to pass on these costs to the customers that directly benefit from the service," the RBA said. "Accordingly, an issue for the bank is whether policy action in relation to these no-surcharge rules should be considered."

Loading The RBA said merchants typically paid a "much higher" fee for using BNPL schemes than for credit or deposit cards, and they were prevented from passing this on in the form of surcharges. "This can be problematic for merchants that feel compelled to offer BNPL services as a payment option for competitive reasons, but are unable to recoup the merchant fees from the customers that directly benefit from the service," the RBA said. Afterpay charges retailers a fee of between 3 per cent and 7 per cent, according to analysts, but customers do not pay a fee for using the service if they pay on time. Morningstar analyst Chanaka Gunasekera said that if merchants started to charge a surcharge for paying via Afterpay it would be a risk to the business model which relies on the service being free to consumers.