What Is Afterpay?
Afterpay is a Buy Now Pay Later (BNPL) service provider. With Afterpay, you can pay-in-four, which allows you to make a purchase in four equal installments either online, in-store, or in-app.
Afterpay was founded in 2014 in Sydney, Australia, and has since expanded to more than 19 million active customers and hundreds of thousands of merchant partners across the U.S., Canada, Australia, New Zealand, the UK, and the European Union.
Similar companies include Affirm, Klarna, and Sezzle.
How Does Afterpay Work?
Afterpay offers a pay-in-four payment plan to split up your purchase into smaller payments, or installments.
When you make a purchase, you can take it home that day — or it will be shipped to your doorstep — and make payments every two weeks. Your first installment is due at checkout, and after six weeks, your purchase should be completely paid off.
Here’s how Afterpay’s pay-in-four plan works. If you make a $400 purchase, you will owe $100 at checkout. The remaining balance of $300 will be divided into three equal installments of $100 to be paid with a debit card, credit card, or bank account every other week until the balance is paid off.
Payments are scheduled automatically and do not accrue interest. While Afterpay gives you a 10-day grace period for missed payments, you could receive an $8 late fee if you do not settle up. The company can also pause your account so you are not able to make any new purchases until you get up-to-date with payments.
Afterpay has rolled out new features to make the payment process easier for customers. You can now change your payment dates from within the app so they align with your cash flow. You can also pay less than the installment amount — or what you can when you can. This can work well if you need to make smaller payments every single week rather than larger payments every two weeks.
Finally, Afterpay also has a hardship policy so you can make payments that make more sense for your financial situation.
Pros and Cons of Using Afterpay
There are a number of advantages and disadvantages to using Afterpay.
Pros of Using Afterpay
- Interest-free payments
- In-app and customer service features that allow you to make your payment plan work for your financial situation
- Soft credit check approval process won’t damage your credit score
Cons of Using Afterpay
- Charges late fee
- Credit score damage if you miss payments
- Buy Now Pay Later can be a slippery slope if you don’t know what you’re signing up for
Should You Use Afterpay?
There are many different reasons why you may want to use a Buy Now Pay Later solution. However, the decision should not be made lightly. Using Buy Now Pay Later requires you to know on a personal level how you manage your money, whether you are in the right financial position to take on credit, and whether you are able to avoid the temptation that comes with BNPL.
You might want to use Afterpay if
You want or need to purchase a large-ticket item
Mattresses, furniture, appliances, tires. Expenses pop up, and if you do not have the money in your checking or savings account, sometimes there is no choice but to put it on credit. Buy Now Pay Later gives you an extra financing option without the interest. Just make sure that you’ll be able to pay off your installments when they roll around.
You do not qualify for a credit card or have a credit card with a low limit
Buy Now Pay Later affords you the opportunity to make purchases with credit even if you do not have the money in your account right this moment.
However, it is important to only make purchases with Buy Now Pay Later if you are certain that you will be able to pay off the installments when Afterpay charges your account. Missing a BNPL payment can result in a late fee and damage to your credit score.
You might not want to use Afterpay if
You are trying to build credit
Buy Now Pay Later is not a traditional form of credit. Afterpay, unlike credit card companies, does not report on-time payments to the credit bureaus. It only reports missing or late payments. This means that Buy Now Pay Later cannot help you — it can only hurt you.
You have a tendency to overspend or can’t avoid the temptation
This requires a long, hard look in the mirror. The fact of the matter is that it’s easier than ever to want things that you see online — and then to turn those wants into purchases. Buy Now Pay Later makes that even easier.
Where Can You Use Afterpay?
Afterpay can be used at hundreds of thousands of merchant partners across the U.S., Canada, Australia, New Zealand, the UK, and the European Union. The company partners with brands for women, men, kids, health and beauty, and home.
Popular brands that accept Afterpay include:
- Sephora
- ThredUp
- Belk
- Michael Kors
- Adidas
- Levi’s
- OshKosh
- Yankee Candle
- Sur La Table
Does Afterpay Hurt Your Credit Score?
Many creditors perform a hard inquiry on your credit report to determine your creditworthiness before issuing you a loan or credit card.
Afterpay is considered a short-term financing option, so the company does not perform a hard inquiry on your credit. The company does, however, run a soft credit check to determine if you are eligible to receive financing, but the check does not hurt your credit score.
Once you’ve made your purchase, you must make on-time payments. If you miss payments, you will not only incur a late fee, but Afterpay will report your missed payments to the credit bureaus. This can bring down your credit score and hurt your chances of getting approved for financing by Afterpay and other lenders in the future.
Recommended article: How Does Afterpay Affect Your Credit Score?
Alternatives to Afterpay
Afterpay works much like other Buy Now Pay Later services including Affirm, Klarna, and Sezzle. The BNPL solution that you use often depends on which one is offered by the merchant.
However, if you do not want to use Afterpay, there are other options.
0% interest credit card
For smaller, less expensive purchases, a 0% interest credit card can be a better option than Buy Now Pay Later. This is considering that you qualify for the credit card. You should also note that the credit card company will likely do a hard inquiry on your credit report before approving you for the card. This can cause a temporary decrease in your credit score.
When you apply for a credit card, even if it is 0% interest, you should be sure that you can make on-time payments in order to avoid credit score damage.
A credit card can be optimal if you want to take advantage of an introductory offer, earn rewards for your purchase, or boost your credit score, which you cannot do with Buy Now Pay Later.
Personal loan
For larger, more expensive purchases, it may make sense to take out a personal loan rather than using Buy Now Pay Later. Taking out a personal loan isn’t the right choice for everyone, nor is it accessible to everyone. However, it can enable you to make a large purchase and pay it back over a longer period of time.
Similar to a credit card, a lender will run a hard inquiry on your credit to determine whether you are eligible for the loan. This credit check can temporarily decrease your credit score. But also similar to a credit card, a personal loan can help you boost your credit score in the long term as long as you make on-time payments. Buy Now Pay Later won’t afford you that opportunity.
When taking out a personal loan, it’s important to find the lowest possible interest rate. You should also make sure that you have a payment plan in place to avoid late fees and credit score damage.
