The buy-now-pay-later (BNPL) sector has grown in popularity over the past few years. Offering a way to make everyday and one-off purchases more affordable today, many retailers have added this payment option to their stores to make them more appealing and affordable for customers.
What is Afterpay and how does it work?
Afterpay is another buy-now-pay-later service that offers interest-free payment plans to customers. It’s a very popular service, with over 5 million Americans using it to shop online and in-store.
Afterpay works by allowing you to set up a payment plan during the checkout process when you buy an item online. Most payment plans are split into four payments that are taken every two weeks. The first installment is usually due at the time of purchase, with another two weeks later and so on.
Unlike some buy-now-pay-later services, Afterpay will not charge any interest or fees provided that you make all your payments on time. Instead, Afterpay makes its money from the retailers themselves.
Does Afterpay affect your credit score?*
As Afterpay payment plans are technically a debt, you may be worried about the impact on your credit score.
The good news is that Afterpay does not report any payment (or late payment) activity* to credit bureaus. This means that your credit score should stay safe regardless of how you use Afterpay.
However, know that there have been reports that the credit bureaus are making changes to allow Buy Now Pay Later services to start reporting credit. Buy Now Pay Later services may decide to start reporting credit in the future.
Can Afterpay build credit?*
Since it doesn’t report information to credit bureaus*, it’s not possible for Afterpay usage to help you build credit. It can help you get into the habit of regularly repaying debts off, but it won’t impact your score either way.
However, know that there have been reports that the credit bureaus are making changes to allow Buy Now Pay Later services to start reporting credit. Buy Now Pay Later services may decide to start reporting credit in the future.
Do you get credit checked to use Afterpay?
While Afterpay doesn’t perform full credit checks, they will perform soft credit checks on new customers (but these should not impact a customer’s credit score). These soft credit checks are a way for Afterpay to correctly access the spending limits for their new customers, and for now, all customers need to consent to this step in the Afterpay process.
What fees do you have to pay with Afterpay?
If you make all your payments on time, there are no fees to pay or interest. However, if you pay late, you will incur a late fee
This late fee can be up to 25% of your order value. Afterpay will also prevent you from making any other purchases until your full balance is paid off and your overall spending limit may be lowered as well As with most things, it is always a best practice to make your payments on time and avoid the consequences of not doing so.
Can you use Afterpay to pay bills?
For the most part, you can’t use Afterpay for your household bills. It’s generally designed for in-store or online shopping. However, if a company accepts Afterpay, then you may be able to use it to pay bills (up to your designated limit).
Is there a credit limit for Afterpay?
In general, Afterpay applies a flexible spending limit tailored to each customer and purchase. These limits can start small and will usually increase over time if you consistently make repayments. As of now, the maximum amount per transaction is $1,500 with the outstanding balance account limit being up to $2,000. These amounts will vary from one store to the next.
To determine your credit limit, Afterpay will consider how long you’ve been using the service, whether you could pay the initial payment when you set up the payment plan, the value of the order, and how many orders you have open.
How many Afterpay orders can I have at once?
Afterpay allows customers to have up to three different orders open at a time in most cases. However, if you’re a brand new customer, you will be limited to just one order. Your account will be tailored according to your spending and repayment habits as you use Afterpay more often.
Where is Afterpay accepted?
Afterpay is available at many major retailers in the U.S. You can find a full list on the Afterpay website, but some of the top brands include:
Adidas
Anthropologie
Bed Bath & Beyond
Dillard’s
Forever 21
Gap
Old Navy
Nike
Lululemon
Ray-Ban
Urban Outfitters
Afterpay can sometimes be used both online and in-store at many of these retailers.
Should you use Afterpay?
This is an entirely personal decision. On the one hand, the buy-now-pay-later option is a convenient way to space out payments for items you purchase. If used sensibly, it can help you manage your cash flow effectively.
However, remember that it’s a debt and while it doesn’t affect your credit score, it’s another expense to contend with. If you should fall behind on repayments, not only will Afterpay limit your account, but it will also become expensive once late fees are added.
If you are struggling to manage your money, using a service like Afterpay may not be ideal. You might prefer other methods such as budgeting, borrowing from friends or family, or using a Prepaid debit card to limit your spending.
* The information in this article is what is known to be correct on the date of publish (and may change over time).
