Finance

How Does Afterpay Work? What You Need to Know

Large purchases can be a brutal hit to your wallet. But what if you could split a single purchase into multiple small payments? With Afterpay, you can shop in store or online with partnered retailers, breaking large purchases into smaller interest-free payments.

We’ll explore Afterpay, one of many buy now, pay later services, and examine whether it could be the right fit for you. Budgeting for a large purchase is generally the best advice, but sometimes you need to make an immediate purchase, and Afterpay could be the solution.

But is Afterpay as good as it sounds, or is it too good to be true?

What Is Afterpay?

Afterpay is a buy now, pay later service. An alternative to credit cards and personal loans, Afterpay allows you to make purchases and pay them off over time. If you have a large purchase, Afterpay can likely split it into smaller, more manageable payments.

You can shop online or at supported in-store locations. Some in-store Afterpay partners include PetSmart, Bed Bath & Beyond, Sephora, Urban Outfitters, DSW and Nordstrom Rack. Check Afterpay’s website to find supported retailers near you.

If you shop online, you can purchase with retailer partners by clicking the Buy Now, Pay Later option at checkout.

How Does Afterpay Work?

Afterpay makes the purchasing process easy. We recommend beginning your purchase by downloading the Afterpay app. The app will let you view your approved purchase limit and shopping discounts.

Downloading the Afterpay App

Once it has been downloaded, launch the app and begin the sign-up process by visiting the My Afterpay tab at the bottom of the screen. From here, click the Create an Account button. You will need to provide personal information to complete the process.

Once signed up, you can navigate the My Afterpay tab to view your preapproved spending limit. You can view current shopping promotions by visiting the Shop tab or keeping an eye on any accrued rewards points under the Rewards tab.

Unlike some of our favorite services, Afterpay limits your purchases to approved shopping partners. You can discover supported stores and websites by checking the Shop tab. You can search out your favorite retailers using the search bar.

Shopping With Afterpay

When you’re ready to purchase, we recommend using the Afterpay app. You can visit some retailers’ websites directly to shop, but not all stores support buying outside the Afterpay app.

At checkout, select the Buy Now, Pay Later button to make the purchase with Afterpay as your payment method. You may need to verify your account information and add a bank account or debit card.

Afterpay will not have any effect on your credit score or report to credit bureaus. Additionally, no minimum credit score is required.

If you are shopping in store with a supported retailer, you’ll need to generate a virtual credit card by visiting the In-Store tab in the Afterpay app. Begin by tapping the Set up the Afterpay Card button and following the instructions.

You can then use the virtual card via Apple Pay or Google Pay to make your in-store purchase.

Afterpay Financing and Fees

Afterpay purchases are split into four payments, payable every two weeks. At checkout, you will be responsible for the first payment (consider this the down payment).

From the original payment date, installment payments will be due on your Afterpay account every two weeks for the next six weeks.

There is no service fee to use Afterpay, and purchases are financed interest-free. The only fee we could discover with Afterpay is a late fee if you miss a scheduled payment. Within the United States, late fees are capped at 25% of the order value.

Once you miss installment payments, Afterpay will stop approving purchases to avoid you plunging further into debt. Additionally, Afterpay may prevent people from purchasing too much by denying purchases. You can reschedule Afterpay payments if needed.

Alternatives to Afterpay

We recommend Afterpay to shoppers looking to split a large purchase into smaller, more manageable payments. However, it may not be the right choice for everyone as it’s not available at every retailer. Here are a few other services you may want to consider.

Other Buy Now, Pay Later Services

Afterpay isn’t the only buy now, pay later service available as a shopping partner. Different options have popped up to offer a short-term, no-interest payment method. Those options include Affirm, Klarna, PayPal, Zip and Sezzle.

Here is how Afterpay stacks up against some of the most popular options:

Buy Now, Pay Later Services Comparison

Features Afterpay Affirm Klarna
Payment schedule First of 4 payments immediately, then every 2 wks Affirm Pay in 4 (every 2 wks) or Monthly Financing Pay in 4, Pay in 30 Days & Monthly Financing
Interest rates 0% interest 0% on Affirm Pay in 4; 0%-30% on Monthly 0% for Pay in 4 and Pay in 30 Days; 0%-25% Monthly
Late fees $10, followed by $7 if payment isn’t made No late fees Up to $7 on Pay in 4; up to $35 on Monthly
Credit score effect No credit check Soft credit check; may report history to Experian Soft credit check for Pay in 4 and Pay in 30
Where it’s accepted Select online & in-store retailers Everywhere online & in-store w/ wireless pay Everywhere online & select in-store retailers

Additional Afterpay Alternatives

If a buy now, pay later service isn’t the best choice for your particular purchase, you may want to consider a more traditional option. Personal loans enable you to borrow money while establishing a credit history as they report to credit bureaus.

The downside to personal loans is that they are rarely interest-free, but you may be able to finance larger purchases.

Another option for large purchases is a zero-interest credit card. To learn more about this credit card type, we recommend checking out The Penny Hoarder Academy: Credit Cards 101. You can also discover the best cash-back credit cards to earn money for every purchase.

The Pros and Cons of Afterpay

There are several pros and cons to Afterpay. Here are some of the biggest ones.


Pros

  • No-interest loans are available for purchases, splitting one large charge into multiple smaller payments without additional charges.
  • The ability to reschedule loan payment dates to better suit your personal finance and billing needs.
  • The mobile app offers rewards points and special offers for shoppers, allowing you to save additional money on future purchases.


Cons

  • Total Afterpay purchases are limited to a maximum of $2,000.
  • Afterpay is accepted only at participating retail locations and online websites, making it a more limited option than its competitors.
  • Late fees, up to 25%, are charged if you miss a payment date.

Frequently Asked Questions (FAQs)

Does Afterpay Affect Credit?

No, using Afterpay will not affect your credit. Afterpay does not affect your credit score or credit rating, as the company does not report late payments.  Afterpay also will not perform a credit check with credit bureaus when you sign up.

How Much Does Afterpay Cost?

Afterpay is a free-to-use service. The only fees we found associated with Afterpay are late fees. If you miss your scheduled payment date, you may be responsible for a late fee, up to 25% of the loan amount. Afterpay does not charge interest.

What Is the Maximum Limit for Afterpay?

The maximum limit for each individual using Afterpay may be different. The maximum approval limit that anyone may receive on Afterpay is $2,000.

Can I Use Afterpay for Gas (Or for Paying My Bills)?

Afterpay can be used only with partnered retailers across the United States. For a complete list of approved retailers, visit the Afterpay website.

Michael Archambault is a senior writer for The Penny Hoarder specializing in technology.


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