Think of Afterapay as a layaway with benefits.
If you remember the layaway plans (ask your parents!), You know it’s an old retail custom where you make installment payments over a period of time to purchase a product or service. that you can’t afford ahead of time.
But the new generation of buy now-pay-later services like After payment increased the stake by allowing you to keep the merchandise immediately after making the first payment. You pay off the balance in three equal installments, but you no longer have to wait to hand over that last dollar to get your hands on your purchase.
If you feel like you’re seeing more of these deals in your favorite stores and online, then you wouldn’t imagine a thing (and you’re probably shopping at retailers that cater to a younger demo).
Australia-based Afterpay claims to have signed over 20 million US customers and work with over 100,000 business partners around the world. Other buy-it-now and later payment options include To affirm and Klarna.
For consumers unable or unwilling to use credit cards, these remittance services can offer the allure of spreading payments without the sting of the exorbitant interest associated with credit card balances.
Choosing installment payments is as easy as a credit card or PayPal option at checkout, but is it worth a try? We’re here to explain how Afterpay works.
What is after payment?
Buy-it-now and Pay-On-Pay services like Afterpay are also known as point-of-sale lenders. Buyers select Afterpay at the time of purchase and can get approved immediately without a credit check. Once approved, the buyer makes an upfront payment and is put on a six week payment plan.
The services tout their advantages over a credit card, noting that users pay no fees or interest on their purchase.
That’s right, but changing the method shouldn’t change the way you think about buying, according to Ariel Ward, Certified Financial Planner at Abacus Wealth Partners.
“If you have a credit card balance and it doesn’t get paid off every month, I think it’s a time to take a break and see if there’s another way to get what you are doing. need or really assess if what you’re trying to buy with Afterpay is something you really need, âWard said.
How post-payment works
Afterpay and other installment payment services are not lines of credit, so you don’t need a credit check like you would with a credit card, but you don’t need a credit card either. benefit of adding on-time payments to your credit history. .
Afterpay works like this:
1. Create an Afterpay account online or through the app. You will need to provide the following information:
- Phone number
- Date of Birth
- Debit or Credit Card Information – Prepaid cards cannot be used for payment.
2. Choose Afterpay at checkout. You will receive a notification of your approval within seconds (if you have overdue payments, you will not be able to make a purchase). If you buy from a physical store, you will be immediately charged for the first 25% of your purchase and take the purchase home with you. If you buy online, your items will be shipped when the first payment is processed.
If you place an order online and don’t receive it, it’s up to you to resolve the issue with the retailer. Installment payments will continue despite the non-delivery of the order.
3. The remaining three payments are due every two weeks. You have the option of making payments manually before the due date, sending payment on the due date, or setting up automatic payment, allowing Afterpay to withdraw the payment from whatever payment method you choose. have saved. Afterpay will send you a reminder before the payment is due, regardless of which method you choose. If you make multiple purchases, you can find out when different payments are due through the Afterpay account dashboard.
What happens if you don’t pay?
If your payment is not processed successfully within 10 days of the due date, a late fee of up to $ 8 (or up to 25% of the purchase price, whichever is less). You will be charged a late fee whenever you miss a payment in installments.
How much can you spend with Afterpay?
The maximum amount you can spend with Afterpay depends on a number of factors, including:
- How long you’ve been using the service (new members have a lower limit)
- Funds available on the debit or credit card you submit (the more you have, the more you can buy)
- Your payment history (always on time = over $)
Benefits of after-payment
Afterpay offers a big advantage over a credit card balance: you don’t pay interest while paying off a purchase. As long as you make your installment payments on time and in full, using the service is free.
Additionally, using Afterpay does not require a credit check like when you apply for a credit card, which can temporarily affect your credit score.
So when is a good idea to use Afterpay?
Maybe you find a good deal on an item and know that you will be receiving a large sum of money in the near future – as a bonus – but you will not receive the money until after the sale ends.
Basically, using Afterpay is useful when you have the option to pay the full amount of the product, but installment payments give you wiggle room in your budget.
Disadvantages of after-payment
So why should not do you use Afterpay?
Let’s start with this question: do you have a credit card balance?
If the answer is ‘yes’ then while Afterpay might seem like an easy way to get that must-have shirt, it only gives the illusion that you have some cash to spend.
And if you have trouble making a payment in installments, you will be charged late fees. For a single purchase, that might not seem like much, but if you’re using Afterpay for multiple purchases, it means a lot of payouts to track – and a lot of fees to rack up.
Additionally, Afterpay isn’t necessarily a reliable source for payments, as you never know exactly how much you can spend on a particular purchase or how many active orders you may have before you got turned down.
And remember how your credit score won’t be undermined for using Afterpay? Well, on the other hand, you are not going to reap the benefits of using a credit card.
Ward suggested that instead of Afterpay, consider applying for a credit card with a very low limit that also offers a grace period (most issuers do, but check the terms of your agreement).
By charging small amounts that you pay back each month, you’ll reap the benefits of the grace period between the time of purchase and the expiration date of your credit card.
And by using a credit card, your on-time payments will be reported to the credit bureaus, helping you build your credit rating, something that installment payments cannot do.
Afterpay vs credit card
So, is a buy-it-now service like Afterpay better than a traditional credit card? Here’s a side-by-side comparison to help you make the best choice for you:
|After payment||Credit card|
|Accepted by||Over 100,000 sites, including Anthropologie, Free People and Ulta Beauty. But you can only use it to pay for retail goods.||Major credit cards (such as MasterCard and Visa) are accepted almost everywhere, including in foreign countries.|
|Payment schedule||Pay in four installments, payable every two weeks.||If you have no balance and your credit card issuer offers a grace period, by law the grace period must be at least 21 days.|
|How Does This Affect Your Credit Score?||Afterpay does not do a credit check before you apply, and on-time payments will not improve your credit history.||Issuers perform a thorough credit check when you apply, which could temporarily lower your credit score. A history of on-time payments can build your credit history and improve your score. Late payments hurt your score.|
|Interest rate||Without interest.||If you keep a balance, you will earn interest daily. The average credit card interest rate is 14.54%, according to the Federal Reserve.|
|Late payment fees||Late fees are $ 8 or up to 25% of your original order value u2014, whichever is less.||Credit card issuers can charge late fees of up to $ 28 the first time you’re late, and up to $ 39 if you’ve been late on your payment in the past six months.|
|Minimum purchase||Although Afterpay does not specify a minimum purchase amount, stores generally do.||Typically, no minimum purchase, although some merchants may require a minimum transaction amount to offset processing fees.|
|What is the limit?||Individual purchase approval is based on various factors including your on-time payment history with Afterpay u2014. New buyers will have more severe restrictions. If you miss a payment, you will no longer be able to make purchases.||Your credit limit is shown in your credit card agreement. The average cre 30,000, according to Experian.|
Ultimately, whatever you choose, as long as you use the services responsibly – read: you pay your balance on time every time – you can reap the benefits of either.
Tiffany Wendeln Connors is a writer / editor at The Penny Hoarder. Read his biography and other works here, then find her on Twitter @TiffanyWendeln.
This was originally posted on The Penny Hoarder, a personal finance website that empowers millions of readers nationwide to make smart decisions with their money with inspirational, practical tips and resources on how to earn, save and manage money.