More and more merchants offer “Buy Now Pay Later” (BNPL) services, allowing customers to split their payments on larger purchases. Afterpay is one such service that allows consumers to make installment payments over time until the full purchase price is paid off, with no interest.
Sounds a bit like a mini loan, right? So, will your credit score be impacted if you choose Afterpay to pay for your purchase over installments rather than pay in full upfront?
Let’s take a closer look at this innovative service to help you decide if it’s worth taking advantage of.
Key Points
- Afterpay is a Buy Now, Pay Later platform that allows you to split up purchases made at participating retailers.
- You’ll need to cover 25% of the purchase at the point of sale, then make 3 additional payments over the next 6 weeks.
- Afterpay does not report installment payments to the credit bureaus, so your credit score will not be affected.
What Is Afterpay?
Afterpay is a financial technology company that operates in Canada, the US, the UK, Australia, and New Zealand. The platform offers buy now pay later payment plans that allow consumers to make purchases online and in person with participating merchants and pay in installments rather than upfront.
After initially launching in Australia in 2018, Afterpay now serves more than 10 million consumers across the globe at over 23,000 merchants.
Does Afterpay Affect Your Credit Scores?
A BNBl plan can make covering the cost of larger purchases convenient, but does Afterpay affect your credit score?
Conventional financing options typically require a credit check. Some creditors and lenders pull credit reports before approving a borrower for a financing plan to assess their risk level, which may result in a temporary dip in credit scores.
While Afterpay has the right to check your credit, they typically do not. This means your credit score will likely not be affected, and no minimum credit score requirement exists. Further, Afterpay BNPL payments are not reported to the credit bureaus, so your credit score won’t be affected.
Instead, Afterpay uses an automated system to approve consumers based on purchases and will check your debit or credit account to verify that there are sufficient funds available. A longer history of purchases repaid on time usually means higher approved amounts.
Will My Credit Be Affected If I Miss A Payment?
Afterpay does not report late payments to the credit bureaus. As such, your credit score won’t be negatively affected even if you miss a payment. The company does not believe that missing a bill payment with Afterpay should result in a bad credit score.
Will Using Afterpay Help Improve My Credit?
Afterpay does not regularly report your payments to the credit bureaus, which means using this service will not help you build credit.
What BNPL Plans Does Afterpay Offer?
Afterpay offers an installment payment plan that splits the full purchase price into 4 equal payments made over 6 weeks. The first payment is made at the time of purchase, which is typically 25% of the total purchase price. The remaining payments are made every 2 weeks until the full amount is repaid.
There’s no interest charged for this financing option, so you can take advantage of this service for free if you make timely payments. Otherwise, you’ll be charged late fees for missed payments.
How Does Afterpay Work?
Merchants who are partnered with Afterpay offer shoppers the option to choose the BNPL platform at checkout. First-time Afterpay users will need to provide payment information to complete their purchase.
Once the transaction is approved, your account is created. You’ll need to create a password on Afterpay.com, then simply log in using these credentials for subsequent transactions.
You’ll receive notifications reminding you when payments are due in advance, with payments automatically withdrawn from your credit card or bank account. For more expensive purchases, the first payment may be higher than the other three, but Afterpay will explain how your installment payments will be divided before you pay.
To sum up how Afterpay works, follow these steps:
- Download the app to shop with your favourite brands.
- Sign up with your email, telephone number, address, date of birth, and debit/credit card.
- Choose Afterpay as your payment method.
- Make your first payment today and the remainder over 6 weeks.
Benefits Of Using Afterpay
Afterpay comes with several perks, including the following:
- No Interest. Unlike other traditional financing options, there’s no interest to pay on the borrowed amount. Instead, you can spread out your payments at no extra cost, as long as your payments are made on time.
- Borrow Only What You Need. If you need extra help funding a more expensive purchase, you don’t have to waste time applying for a traditional loan to cover the cost. Simply choose Afterpay at checkout to pay only for a quarter of the purchase, and give yourself a few weeks to come up with the rest.
- Quick Application. It only takes a couple of minutes to complete the signup process. Then you can use Afterpay right away.
- Automatic Payments. Payments are automatically deducted from your account, so you won’t have to make manual payments. Afterpay will send you notifications shortly before a payment is due.
- No Credit Check Is Required. Since Afterpay typically doesn’t pull your credit report, your credit score is not important. Just be sure not to miss any payments and keep your account sufficiently funded before payments are withdrawn.
Drawbacks Of Afterpay
While there are plenty of perks associated with Afterpay, there are a couple of factors to consider before signing up:
- Only Available With Participating Retailers. You’ll need to make sure that the retailer you shop with is partnered with Afterpay in order to take advantage of this installment payment service.
- Late Fees Charged. If you make late installment payments, you could be charged a late fee. That said, late fees are pretty standard in the lending industry, so this is not something that is unique to Afterpay.
How Much Does It Cost To Use Afterpay?
Afterpay is free to use when you pay on time. There are no upfront fees to pay or interest charged on the money borrowed.
However, there are late fees charged if you miss your due date. Late fees are capped at 25% of the purchase price, or $68 per order. The exact amount that you may be charged for late payments depends on the order amount:
- Orders Less Than $40: Late fees will not exceed 25% of the order value. For instance, a purchase of $36 with four $9 installments will not incur late fees of more than $9 (25% of $36).
- Orders Of $40 Or More: With each late installment payment, an initial $10 fee will be charged. Seven days after the payment was due, an additional partial late will apply, up to $7.
Payments are automatically withdrawn from your debit or credit card account, so the only way to miss payments is if you have insufficient funds available. You’ll receive notifications to inform you of upcoming payments so you won’t be caught off guard. If your account is a little low in funds, you’ll have some time to top it up so there’s enough in there to accommodate the Afterpay payments.
Which Stores Can You Use Afterpay In?
There are dozens of merchants that use Afterpay. The BNP company is constantly expanding its retailer partners. Here are a few of the more popular ones that you can use an Afterpay BNPL with:
- Roots
- Herschel Supply Co.
- Native Shoes
- American Eagle
- Ardene
- Bike Exchange
- Dermalogica
- FragranceX.com
- Huda Beauty
- GOLI
- Maelys Cosmetics
- Nixon
- Perfume.com
What Happens If You Want To Return Something You Purchased?
If you change your mind about a purchase made using Afterpay, you can get a full or partial refund.
- Full Refund. If you return a product and receive the full refund amount, any paid amounts will be credited back to your account and all future payments will be cancelled.
- Partial Refund. Partial refunds are a little more complicated and depend on when the refund is processed. For example, if you had already made the first payment by the time the merchant processes the refund, the next 3 payments will be cancelled. The first full payment will be adjusted accordingly based on how much has been processed. Any differences are refunded back to the card the payment was paid from.
Refunds can take up to 10 business days to process, depending on your bank.
What If My Order Is Declined?
Your Afterpay purchase can be turned down. There are a handful of reasons why this might happen:
You’re A New Afterpay Customer
If your Afterpay account has been open for less than six weeks, the company may limit the number of purchases you can make. Their rules are stricter when you first open your account to encourage responsible spending.
If this is the case, you could reduce your order amount. Keep in mind that this won’t necessarily guarantee that your order will be approved, but it could increase the odds.
Depending on the number of orders you’ve made, you might have to wait a bit before you try shopping with Afterpay again. Once the initial 6-week period has passed, you may be approved for higher spending limits.
You Have A History Of Late Payments
As mentioned, Afterpay is committed to responsible spending. As such, they may limit your orders and spending amounts if you have a history of making late payments.
Going forward, make sure that you make on-time payments. You may need to be patient, as a certain amount of time may be required to build back your reputation.
If you think you might be late with a payment, you could extend the due date in the Afterpay app. Or, reach out to an Afterpay representative at least 24 hours before the payment is due to see what other options are available.
You Don’t Have Enough Money In Your Account
Since your payments will be automatically withdrawn from your account, you need to ensure enough money is there to accommodate the full amount of each payment. You must have 25% of the purchase price available for your order to be approved. For instance, a $60 order would require $15 in your account.
Your Credit Card Isn’t Working As Expected
Your credit card may be inactive or restricted in some way. If your card has been blocked by your bank, your order won’t go through.
Final Thoughts
Afterpay is a great option if the purchase you’re making is a bit pricey. In this case, you might not want to drain your account all at once. Instead, you can use a free service like Afterpay to split up your payments and make purchases easier on your wallet.
