What You Need To Know About Afterpay. Is It Too Good To Be True?

Afterpay is a buy-now-pay-later (BNPL) service that offers interest-free payment plans. Launched in 2015 in Australia, it debuted in the U.S. in 2018. Since then, it has become extraordinarily popular. Over 13 million people in the U.S. have used Afterpay, and the company sold $1 billion worth of products nationwide in November 2020.   However, just because the payments are interest-free doesn't mean you won’t have to pay any other costs. Learn more about how to use Afterpay and what to watch out for before choosing this option at checkout.

How Does Afterpay Work?

Afterpay allows you to set up payment plans during the checkout process for many retailers. These plans are all generally structured the same way: The purchase amount is split up into four payments made every two weeks over the course of six weeks, with the first installment due as you check out.  You can also use the Afterpay mobile app to set up an Afterpay Card for contactless payments in stores at select retailers. 

Afterpay's business model works differently from other buy-now-pay-later service providers. If you make all of your payments on time, you won't pay any interest or fees. This means your final cost could essentially be the same as if you had just paid in full for the purchase. Since it doesn’t charge interest, Afterpay makes money through the merchants it partners with. Many merchants hope that they'll be able to spur more sales by offering this type of payment plan to customers.

If your Afterpay payment is late, you could be charged a late fee worth $8.   The Afterpay website also states that late fees for U.S. shoppers may be capped at 25% of the order value.

Is There a Minimum Purchase Size When Using Afterpay?

Yes. Afterpay is only available for online purchases of $35 or more.

Is There a Maximum Purchase Size When Using Afterpay?

Yes. When you first start using the service, you're limited to transaction amounts of around $150. Over time, if you demonstrate good repayment (on time and in full), you may be able to use Afterpay on orders of up to $1,000.

Do Products Bought With Afterpay Ship After the First Payment?

Yes. You'll make your first payment immediately. After that, your online purchase will ship out normally, just as if you had used a credit or debit card to pay.

Can I Use Afterpay To Pay Bills?

It depends on the bill and how you make your payment. To pay a bill in person, you'll need to download the Afterpay app. This gives you access to the Afterpay Card, which allows you to spend funds just as if you were using a credit card.  You can also load the Afterpay Card into your Apple Pay or Google Wallet. Then you may be able to use the card to pay bills (if the company accepts Afterpay) up to your spending limit.

Does Afterpay Check Credit?

No,  the service does not perform any kind of credit check, not even soft credit checks, so it doesn’t look at your score or credit history. Instead, Afterpay manages its risk by only approving you for small orders at first. Once you prove that you're capable of managing your debt, you may be approved to spend more. 

Does Afterpay Report Your Activity to Credit Bureaus?

Afterpay does not report your payment activity to credit bureaus, even if you pay late.  Not reporting payment activity to credit bureaus is good if you ever do make a late payment. However, it also won’t help you build credit or improve your credit score.

Does Afterpay Charge Interest?

One unique feature about Afterpay is that it does not charge interest . not even if you pay late (in that case, you'll be charged a late fee instead, as mentioned above).  You can pay off your Afterpay balances early. This won't save you any money since you're not being charged interest. However, paying early will free you of the debt sooner and lessen your chances of paying the late fee. 

Is Afterpay Safe?

Afterpay is quite safe compared to credit cards, personal loans, and payday loans. You aren't risking your credit if you don't pay, there’s no interest, and the late fee is pretty small compared to other credit cards. Instead, the company's betting on you making your payments on time so that you can use the service again, thus incentivizing you to spend more.  One of the biggest dangers of buy-now-pay-later services is that they might make it too easy and effortless to buy things. You could end up spending more than you planned or really can afford.

How Do I Pay Afterpay?

Oddly enough, Afterpay only accepts credit or debit card payments. For U.S. shoppers, the card must be issued within the U.S. International cards are not accepted.  Paying Afterpay with a credit card can be a risky strategy because you're putting a no-interest charge on a high-interest credit card. This is rarely a good choice. In addition, you may lose out on any points or rewards that come with your credit card.

What Happens If I Don’t Pay Afterpay?

If you don't pay Afterpay, the company does two things. First, you'll be charged a late fee. Second, you'll be locked out from paying for new orders with Afterpay until you pay your overdue payments.  It's also possible that Afterpay may not approve you for future purchases either. Your Afterpay payment history is one factor the company takes into account when deciding whether to approve you or not for purchases. 

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(Reprinted in part from thebalance.com)

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