• Donnelle Brooks

Everything You Need to Know About Afterpay: A review

Updated: Apr 26

Everything you need to know about Afterpay.


Since it's launch in 2014, Afterpay has changed the credit environment in Australia. Young people are abandoning credit cards. Particularly as debit cards now allow online purchases, credit cards are becoming obsolete. Which is a good thing as we all have a friend with a $10000 credit card debt and seemingly nothing to show for it.


The first age group to embrace Afterpay was unsurprisingly Millenials and Gen Z, with 55.9% of users under the age of 35. Furthermore, they are using it more often, with 40.6% percent of the transactions in the last 12 months being made by millenials.


So considering so many Australians are using Afterpay, how much do you actually know about it? Our comprehensive guide will tell you everything you need to know


Overview

What is Afterpay?

How does Afterpay work?

Is Afterpay safe

Does Afterpay charge interest?

What Does Afterpay cost?

Does Afterpay credit check?

Does Afterpay build credit?

How does Afterpay make money?

How to use Afterpay

Is Afterpay worth it?

What stores accept Afterpay?

Cancellations, Refunds and Disputes

The Bottom Line


What is Afterpay?

Afterpay is an Australian Financial technology company (fintech) operating in Canda, US, NZ, UK and Australia. They are currently worth $7 billion, which for a company founded only 7 years ago is completely unprecedented. The business started as an idea to allow debit cards to function as credit cards via instalment plans. The idea was hatched from the observation that most younger people don't have credit cards. And thus, Afterpay was born.


Millenials have embraced Afterpay as a payment option more than any other age group

How does Afterpay work?

Afterpay allows you to buy an item on the spot, and pay it off in 4 instalments. The app allows you to connect a debit or credit card, and it uses that account to make the payments. Rather than conducting a credit check, the platform requires you to maintain a good payment history.


When making a purchase you select Afterpay as your payment option at checkout. Purchases are subject to approval on a case by case basis. The longer you have used the service the more likely they are to extend you larger amounts of credit. If you miss a payment, you will not be able to make a purchase until the account is settled.


Afterpay fees are minimal to the consumer, with the exception of late fees. Their main revenue source is merchant fees. This article contains info about how Buy Now Pay Later services make their money. They charge merchants anywhere from 4 - 6% per transaction, as well as a 30c flat fee. Ouch!


Is Afterpay safe

Afterpay do cybersecurity well. Their security standards are the highest level of payment data security in the world, known as Level 1. That's according to them though, and of course they are going to say that.


One example is a recent data breach of online retailer Princess Polly. Their site was targeted by third party hackers between November 2018 and April 2019. The only unaffected customers were Afterpay and Paypal users, making their standards more secure than the banks.



Does Afterpay charge interest?

The short answer: No. However, things are rarely ever that simple.

According to Afterpay, nearly 90% of their uses pay for their purchases using a debit card. For the 10% who are using their credit card, however, they are at serious risk of a credit spiral. You may not be charged any interest by Afterpay, but you better believe your credit card will charge you interest on the repayments!


Charging Afterpay instalments to your credit card may have the benefit of giving you extra time to meet your repayments within your card's interest-free period, but if you don't stay on top of it it will cost you more money then simply putting the purchase straight onto your credit card.


What does Afterpay cost?

As we mentioned, Afterpay do not charge interest. If you miss payments you can be charged up to $10 on small purchases under $40, and up to $68 dollars on larger purchases. That may sound nominal, but if you have five large purchases and miss payments on all of them, that totals to $340, as you pay fees on each purchase, not on the account. As most people have multiple purchases on their account at once, these fees can really add up!


But what if you pay perfectly? Are there any hidden costs?

If you use Afterpay with a debit card and make all your payments on time, there is no cost.


Does Afterpay credit check?

Afterpay is unlike other credit providers, in that they do not conduct credit checks. Rather, they extend a small amount of credit, which increases as you maintain a good payment history. They do say on their website that they do not report to credit bureaus, which is not entirely true. If you default on your payments and do not settle your account, they will report you and it will affect your credit rating.


Does Afterpay build credit?

As Afterpay does not conduct a credit check upon applying, it will not appear on your credit file. Therefore, having a good repayment history with Afterpay will not help improve your credit score. However, if you are going for a loan, the credit agency will be able to see your Afterpay history on your bank statements, which may affect their decision to give you a loan. If you show that you regularly meet your Afterpay commitments, great! If you have a huge Afterpay bill, are heavily overcommitted and have multiple missed payments, it's not such a good look.


How does Afterpay make money?

This is the million dollar question! If the service is free, how are they making their money? There are two ways they make money. 20% is from missed payment fees, and the other 80% is from merchant fees. What are merchant fees? Afterpay are charging retailers 4% every time you choose Afterpay as your payment method. Compared to the 2% that Paypal charge, that's pretty steep! Check out our article on the different Buy Now Pay Later services, where we break down how each service makes their money.


How to use Afterpay

To start using Afterpay, you download their mobile app. After being approved for an account and linking your card, your available balance will show on the screen. A barcode is generated that will be scanned at the point of purchase.

You then take the item you want to buy to the checkout, you choose Afterpay as your payment method. The barcode is scanned and the balance is added to your account. Think of it as an online virtual credit card




Is Afterpay worth it?

This one is really up to you, and how you intend to use it. If you want to use it as a budgeting tool to spread large expenses over several instalments, go for it. If you are prone to overspending or are having cash flow issues, I'd advise against it. It's much better to get into a routine of saving for the things you want. If you want some tips on how to start saving, check out this article.


What stores accept Afterpay?

It would be shorter to list which stores DON'T accept Afterpay! As the most popular Buy Now Pay Later service, the list is exhaustive. You can expect most large retailers and a good chunk of boutique stores to offer it. If you really want an exhaustive list, here it is.


Cancellations Refunds and Disputes

Afterpay does not handle returns and disputes directly. That is handled through the retailer. If you have made payments towards an item or want to refund part of a purchase they will refund money back to your card. However, first the retailer must accept the refund.


The Bottom Line

Personally, I am not a fan of Buy Now Pay Later services. I think anything that is worth buying is worth saving for. However, I can see the value of Afterpay if used correctly. Just make sure you make your payments on time! I would suggest only buying one thing at a time to make sure that your debt with Afterpay is manageable. Because make no mistake, a payment plan is still a debt.


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