What Is Afterpay? Is Afterpay a good deal? How does After pay work, and what do Afterpay reviews say about the buy now, pay later, company?
What Is Afterpay?
Even before the Square buyout of Afterpay was announced, there was increasing buzz around the so-called buy now, pay later company, mostly in the form of breathless, Guess What Millennials are Doing Now? articles.
So, what is Afterpay? Afterpay is a financial company. The Afterpay app is the main way of interacting with Afterpay, although many Afterpay stores integrate directly with the company. To sign up, you apply for credit with Afterpay. Afterpay sets a limit on the amount you can spend. When you buy something, the money doesn’t come out of your bank account, but rather goes on your Afterpay account as a debit that you have to pay back.
If you said, “Hey, that’s what a credit card is,” then you have your money brain on this morning, but there are a few very important differences that make Afterpay not a credit card.
How Is Afterpay Different from a Credit Card?
The main difference between Afterpay and a credit card is that Afterpay charges no interest. However, if the user pays off the credit card each month, it charges no interest either. A customer paying off their credit card every month ends up with very similar terms to Afterpay. In fact, in some cases, a credit card is better than Afterpay.
The other important difference between Afterpay and a credit card is that Afterpay only allows a total of six weeks to pay off each purchase in one-quarter payments. Note that this is six weeks per purchase up to your limit. To pay with no interest on your credit card, you have to pay off your card balance by the next payment cycle, which can be anywhere between four weeks and seven weeks depending upon when during your credit card cycle you make the purchase. This may be an advantage to some users if they made two large purchases within a few weeks of each other.
For example, Jeff buys a TV with Afterpay. Afterpay schedules four 1/4 total payments over the next six weeks. A Visa or Mastercard already has a payment due date scheduled ahead of time. To avoid interest charges, Jeff must pay the full balance of his card (not just his recent purchase) buy the next due date.
A week later Jeff buys an eBike with Afterpay. Afterpay schedules four 1/4 total payments due over those next six weeks, the final payment coming due a week after the final TV payment. Assuming that week doesn’t cross into a new payment month, Visa continues to have the same payment date as before. To avoid interest, Jeff must pay off the card balance, including both items, by the scheduled payment date.
In the example above, Afterpay is better than a credit card.
However a credit card is better than Afterpay in most circumstances for anyone who pays off their credit card every month on a consistent basis. In this case, not only does the user pay no interest, but no payments are due in the mean time. To pay off the balance in six weeks with four payments, Afterpay users must make a payment every 10 days or so. With a credit card paid off monthly, no payments are required until the due date of the cycle following when the purchase was made.
How Does Afterpay Work?
Like most credit, you have to apply for an Afterpay account. Afterpay offers short payoff windows and lower overall credit limits, so the credit check isn’t as rigorous as it would be for a premium rewards card like Chase Sapphire Rewards, or the Capital One Venture Card. You get instant notification if you are approved through the Afterpay app.
Once you have the Afterpay app installed and your approval and limit, you can shop with Afterpay at certain retailers including using Afterpay at Amazon and Afterpay at Target. Other retailers include:
- Old Navy
- Victoria’s Secret
and TikTok favorite, Shein.
You can’t use Afterpay to pay at non-affiliated retailers, but there is a whole list of Afterpay retailers.
Using Afterpay online is the easiest, but you can set up an Afterpay Card in the app and pay via Apple Pay or Google Pay depending on if you have an iPhone or an Android phone.
For each purchase you basically make a 25% down payment, or “your first payment” if you prefer. You then make 25% payments every two weeks until it is paid off. So, basically, the Afterpay payment schedule looks like this:
You make your purchase by paying 25% as part of buying with Afterpay. So, on Week 0 you pay 25%
On week 2 you pay another 25%. At this point you have paid off 50% of your purchase.
On week 4 you pay another 25% and have now paid 75% of the purchase price.
On week 6 you pay the final 25% and have paid 100% of the purchase price.
At this time, the amount you had used up of your limit with this purchase is released and you can use those funds for your next purchase.
Afterpay Review Conclusion
What is Afterpay good for?
Afterpay is very popular, so clearly there is a market for it. However, for those with a healthy credit card portfolio getting paid off every month without interest, Afterpay isn’t necessary. For those with a credit card portfolio carrying a balance and paying interest, Afterpay is tempting, and perhaps a way to learn how to better use credit in the future (taking on debt only when you know you can quickly pay it off.)
Afterpay is useful for those who are “unbanked” or those who don’t have or wish to use more traditional credit.
The people Afterpay is best for are those who get paid every two weeks and who want to make a purchase now rather than making the same purchase after saving for a few paychecks. As an example, Ann gets paid every two weeks. She needs a new iPad for classes that are starting this week. Rent is also due this week, so Ann’s cash flow doesn’t really allow her to purchase her iPad now. However, with Afterpay, she buys the iPad by putting down just 25%. When Ann gets paid in two weeks, she uses part of her paycheck to make the next 25% payment, and so on. Her iPad is paid off before Fall Break, and she has been able to use it during that first trimester of classes.
The best thing about Afterpay is also the worst thing about Afterpay. Afterpay is NOT traditional credit. It doesn’t pull your credit report, or credit score. This is good because it does not hurt your credit by adding a new account, and new balance to your credit report. This is also the bad thing about Afterpay. If you are making purchases and paying them off every time, that could be improving your credit score, but since it isn’t reported, it has no affect.
Afterpay Reviews agree. Afterpay is a good service for those who need it, but there are many who can do the same thing in sometimes better way. If getting a few weeks to pay something off sounds like a good thing for your own personal finance situation, then go right ahead. If you don’t need it, you aren’t missing out on having anything either.
Afterpay is getting bought out by Square, so its stock will be going away soon. Despite its presence in America, it is actually an Australian company and trades on the Australian market. You can buy Afterpay stock in the US under the ticker APT.AX.
Afterpay is similar to Paidy which is also getting acquired. PayPal is buying Paidy, likely to avoid being left behind in the buy-now-pay-later market. Whether Afterpay is better than Paidy, or Paidy is better than Afterpay is sort of moot since both will likely undergo big changes under their new owners. For now Afterpay versus Paidy comes down to which one best matches up with the places you usually buy.
About the Author
By Brian Nelson – Brian is a former Certified Financial Planner (CFP). He currently owns ArcticLlama, LLC, a premier freelance writing business in Denver, Colorado. As of publication, Brian did owned shares of Amazon, Target, Chase, and Kroger, although that may change at any time. This article is for informational purposes only and is not investment advice. Consult your financial advisor or tax professional for advice about your own specific situation.