What You Need To Know About Afterpay

Is it too good to be true?

Couple shopping on laptop sitting on sofa in living room at home
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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, according to a December 2020 Afterpay press release.

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.

Note

If your Afterpay payment is late, you could be charged a late fee worth $8, according to Isabella Scala, an Afterpay representative who spoke with The Balance via email. 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, according to Scala. 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.

Is There a Credit Limit With Afterpay?

If you apply for the Afterpay Card, it will show you the spending limit for which you're approved. On the other hand, if you're using Afterpay to pay for a purchase directly with a merchant, the rules work a bit differently. You can only use Afterpay for purchases of up to about $150 the first time you use it. 

How Can I Increase My Credit Limit?

If you demonstrate good debt management by making your payments on time and in full, Afterpay may gradually approve you for higher spending amounts. Over time, you may be able to use Afterpay for online purchases of up to $1,000, according to Scala. 

How Does Afterpay Affect Your Credit Score?

Since Afterpay is an interesting service, you may be wondering how it affects your credit report and score. 

Does Afterpay Check Credit?

No. According to Scala, 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 to the company 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, according to Scala.

Note

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.

What Credit Score Do You Need To Use Afterpay?

Since Afterpay doesn't use credit scores, there is no minimum credit score to use the service. Instead, if you're not approved to use Afterpay, it could be for a few reasons:

  • You're behind on your payments with another purchase made through Afterpay
  • You already have too many orders open with Afterpay (this varies per person)
  • You haven't yet demonstrated that you can handle paying back smaller purchases with the company

Does Afterpay Charge Interest?

One unique feature about Afterpay is that it does not charge interest. Zilch. Nada. Not even if you pay late (in that case, you'll be charged a late fee instead, as mentioned above). 

In contrast, the average annual percentage rate (APR) for a credit card was 20.28% in April 2021, according to data collected by The Balance. The average rate for a 24-month personal loan was 9.46% APR as of March 2021, according to the Federal Reserve. With Afterpay, the APR is 0%.

However, you'll need to be careful. One of the ways you can opt to pay your Afterpay installment plan is with a credit card. If you're not paying off your credit card balance in full each month, you're not really saving any money at all by using Afterpay. You're just trading an interest-free installment plan for high-interest credit card debt, which defeats the whole purpose of Afterpay. 

Important

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. 

Does Afterpay Charge Fees?

Yes, and this is an important point. If you make your payments on time, Afterpay is free to use—you’re just paying for the item you bought.

However, if you pay late, you'll owe a late fee worth $8 or potentially 25% of the order value. In addition, Afterpay won't allow you to make any other purchases through its service until you make your past-due payment. 

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. 

Afterpay may be useful if you really do need to buy something now but can't afford it. For example, if you're moving into a new apartment, you may need to buy a mattress to sleep on. Afterpay could break that large cost down into four smaller payments over six weeks.

Warning

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. With 0% interest on a new designer outfit or video game console, no one's going to stop you from clicking “order” and suggest that you save that money in an emergency fund instead.

Who Accepts Afterpay?

Afterpay works with over 55,000 merchants around the world. Some notable ones you might have heard of include: 

  • Anthropologie
  • Bed Bath & Beyond
  • Old Navy
  • Ray-Ban
  • Urban Outfitters

How to Use Afterpay Online

You can use Afterpay online in three main ways. Afterpay itself maintains a directory of stores on its website where you can find every retailer that offers the service. You can also find stores through the Afterpay mobile app. Or just keep an eye out for Afterpay as you're shopping online. 

In any of these cases, the way you use Afterpay is the same. Simply click through to the site, shop, add items to your cart, and then select Afterpay as the payment option while you're checking out. The next webpage will let you know if you're approved. If you are, a payment plan will be created for you that you'll manage on the Afterpay website or via the app. 

How to Use Afterpay In Stores

Afterpay also lets you shop in brick-and-mortar stores using the Afterpay Card.You can apply to use Afterpay at these stores through its app. If approved, you'll see a set spending limit in the app. 

To use the card, you'll need to load it to your Apple Pay or Google Wallet. Simply use that to pay in-store when you're paying for your purchase.

Tip

Check your spending limit in the Afterpay app before you check out at the register to make sure you can afford the purchase. 

How Do Returns Work When Using Afterpay?

If you need to return some or all of your items, you can easily do so. Just return your purchase to the store like normal, subject to the store's own return policy. 

The store will then notify Afterpay of your refund amount. The refund will be applied to your payment plan starting with the last payment and working backward. This is an important point to understand because returning an item doesn't necessarily mean you won't owe anything on your next payment. 

Instead, if your return doesn't cover the full cost of the original purchase price, you may still have to pay the difference. If your return does fully cover the cost of your outstanding balance, though, you'll get a refund on the card that is connected to your Afterpay account. 

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. For example, if you purchase a vacation package with Afterpay and pay it off with a travel rewards card, you might lose out on earning travel rewards. 

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.