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Afterpay Review: How to Know if It’s Right for You

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Afterpay is one of the better buy now pay later websites out there, but does that mean you should use it? I’m sharing the real consequences of using Afterpay & other buy now pay later sites as well as the ONLY reason you should ever use one. 

I get an email once a week with trending topics on the internet and they’re not all financial so when I see one that is finance-related I get really excited and that’s what happened when this company Afterpay showed up on this list. 

That’s because since mid-2016 the number of customers using buy now pay later services has risen from 100,000 to over 7.3 million.

Before I explain what Afterpay is, I want to give you the big takeaway at the beginning: What you  “need” may not be what you need. We fill our lives with things we think we need because other people tell us it’ll make our life easier or because it looks great on impulse but if you take a minute to think, you’ll probably find that “need” is a subjective word. Especially when it comes to anything you can make payments on.

Don’t forget to subscribe to Modern Frugality on YouTube and watch the video I created about my Afterpay review.

What is Afterpay?

Afterpay is a payment method you can use to purchase things online. As of October 2020 it’s now also available in-store at certain major retailers. It is a buy now pay later service that works with retailers to allow you to make purchases without having to pay for the entire purchase upfront. 

It is essentially fronting you to the money to pay for your purchase. Afterpay pays the merchant for your purchase and then you will pay back Afterpay for the purchase, in four installments, until the balance is paid in full. 

How Afterpay Works

After creating an account with Afterpay, you can use it at selected online merchants to pay for your purchases. When you check out at an authorized Afterpay merchant, you just select Afterpay as the payment method. 

You pay a 25% down payment at the time of the purchase and then the remaining balance is split up into 4 equal payments due every two weeks. So you’re paying for the purchase over the course of 6 weeks (1 due immediately and then the remaining 3 payments are due every two weeks from the date of purchase). There aren’t any interest, fees, or credit checks. There are only late fees. 

Must be over 18 and have an Afterpay account. Afterpay charges retailers 3-5% of your purchase price which is how they are able to keep the service free for consumers.

Afterpay’s minimum purchase limit depends on each retailer. Each retailer sets their minimum purchase amount to use Afterpay as payment. The maximum depends on the information you submit in your application to Afterpay. So while your maximum could be one amount, mine could be totally different. And you can increase your limit each time you use Afterpay and make payments on time.

After you’re accepted, that doesn’t mean you can just go crazy buying things. They look at each order. Before approving, they look at your payment history with them and the dollar value of the order. Your order could be declined if they think you might be a higher risk of missing your payments for that purchase.  

Requirements to Create an Account with Afterpay

The requirements for Afterpay are: 

  • Must be at least 18 years old (or 19 in Alabama)
  • Be a US resident
  • Be capable of entering into a binding contract
  • Have a valid email address and phone number
  • Have a valid mailing address inside of the United States
  • Be authorized to use your payment method provided for repayment 

Does Afterpay Check Credit?

Afterpay doesn’t check your credit and doesn’t require you to enter your social security number. Instead it looks at how long you’ve lived at your addresses and your buying histories. 

This means Afterpay can neither harm nor help your credit score. But that doesn’t mean it can’t hurt your credit-worthiness. These companies still “reserve the right to report bad behavior to credit bureaus.”

Which Stores Accept Afterpay

Almost 5,000 retailers accept Afterpay online. A store has to be an approved Afterpay merchant in order to accept Afterpay as a payment method. For a full list of merchants, check out this list. 

Problems with Afterpay

The idea of not parting with all your cash upfront on a purchase may sound tempting but get this, Afterpay says its customers report a 300% increase in average order value and a 200% increase in units per transaction among shoppers who use the service.

Buy Now Pay Later services are not designed to help you, they’re designed to help retailers. And that’s not the only problem with using Afterpay.

It can lead to overspending and bad money habits

THIS IS THE BIG REASON NOT TO USE AFTERPAY!!! It is essentially an aid to impulse spending. I can say this confidently because in looking at thousands of retailers, it’s not available at any retailers selling things you “need.” It’s mostly clothing, beaty, and home decor brands.

And you already know that Afterpay is proud to advertise to retailers that they can triple a customer’s spending with their service so don’t think you’re immune to spending more.

But you already knew that. You’re probably here to find out “what’s the worst that could happen?” So you can justify a purchase you didn’t plan for. 

You aren’t learning good money habits by buying things before you can afford to pay them in full. You’re getting instant gratification. You just pay it back later when the payment is due if you have the money. If you don’t, well then the late fee cycle starts. 

Study after study shows that when you don’t pay cash for something, you don’t feel the burn. You don’t feel the sting of handing over your hard-earned money in exchange for a purchase or the guilt of seeing your bank account at double double digits. 

That sting and that guilt are healthy! They keep you from overspending! But Afterpay takes advantage of those feelings and eliminates them so you can spend money more easily. Don’t fall for it.

Afterpay can be more expensive than a credit card

Afterpay works on the assumption that you’ll have the money in the future. 

Unfortunately, a lot of people who don’t have money today, will also not have it in two weeks. If you don’t, you’re going to be charged a late fee of $8. And if you don’t have it again, when it’s time for the next payment, you’re going to be charged another $8. On a $100 item, you’re at 16% in late fees in 4 weeks.

The average APR for a credit card is currently running 16-18% so if you miss another payment you were better off putting it on a card, to begin with, because Afterpay will charge you late fees until they equal 25% of your purchase. 

Afterpay reported $32.6m in late fees in the second half of 2019 which is over 15% of their total revenue. They count on you missing payments.

And “0%” loans from sites like Affirm and Bread are no better. Only about ⅓ of Affirm loans are 0%. Basically, just the people who don’t need it are eligible. Like everything in banking.

Afterpay can only hurt your credit

The benefit of “no credit check” is that Afterpay doesn’t have to show up on your credit report but it can still report any missed payments to the credit bureau at its discretion. Afterpay only reports negative activity to the credit bureaus meaning it will only ever hurt your credit score.

And don’t believe the hype from sites saying they can help your score. Many of them, including Affirm, only report to one credit bureau, which limits the credit-building effect. 

If you want to build your credit you’re better off getting a credit card. Start with a student credit card or a secured credit card. And if you have student loans, work on paying those off, and you’ll raise your score.

It can impact your ability to get a mortgage or car loan

So we know it definitely won’t help you get a mortgage or car loan or help lower your rate on one, but if you’re not careful it could actually inhibit your ability to get a loan you can afford.

While a ding from a buy now pay later site probably won’t prevent you from getting a mortgage or other large loan, it can cause banks to give you a higher interest rate on these loans as a result of your lower credit score and/or just simply seeing it on your credit report.

Banks also see the use of Afterpay as an indication that you can’t afford your lifestyle, whether that’s true or not, and will increase your interest rate as a result.

Note, with any buy now pay later service you use, you need to find out if they’re doing a hard credit check. A hard check will not just affect your credit but when you go to apply for loans in the future, banks will see that a buy now pay later company pulled your report and assume it’s because you didn’t have money to pay now.

Seriously, if you want to raise your credit score, get a secured credit card then move up to a regular credit card. You don’t get 6 weeks interest-free like Afterpay but you get 4 weeks and you shouldn’t be buying if you can’t afford to pay the credit card bill in full when it’s due.  

Some Aferpay merchants have minimum purchase limits

Some Afterpay merchants have minimum purchase limits. So if the purchase you’re trying to make is under the minimum, you will have to add more to your cart in order to pay with Afterpay. This will, again, make you spend more than you intended to spend.

You can’t pick your payment date

Afterpay doesn’t let you pick your payment date. This leaves you at risk for not having the money to make the payment or worse, overdrafting your account. Then the cycle of tacking on late fees starts. You can spend up to 25% in interest on your items if you get hit with the maximum amount of late fees. 

Just because you have available credit, doesn’t mean your order will get approved

Even though you have been approved for Afterpay, they still may not approve the order. The approval still has to take place for each order. 

If they think you won’t be able to pay for the order, they will decline to pay for it. So just because you’re approved, doesn’t mean you’re approved for every order. 

The order approval process is a mystery. They just look at your history with them and decide if they “think” you’ll be able to repay the loan. 

How to Use Afterpay Responsibly & How to Know if Afterpay is Right For You

I won’t lie to you, I think buy now pay later services encourage impulsive spending, they encourage people not to budget or consider their expenses when shopping. In the long run, the mindset of people who use buy now pay later services is not a wealth-building mindset. It builds an “I want it when I want it and I don’t care how it impacts my future” mindset.

The only way these sites are reasonable is when they help you make money.

If you need new clothes for a job interview or a new uniform for a new job then Afterpay can help you make money. This is the ONLY time I would advise you to use Afterpay as a payment method. But you should still look at buying second hand clothes first. It saves money and it’s better for the environment.

Other than that, you can’t convince me using Afterpay is a good idea.

Alternative to Afterpay

You don’t have to use Afterpay. There are other ways to fund your purchases without using a buy now pay later site. 

You can:

After this review of Afterpay, I hope you can make an informed decision as to whether or not it is a fit for you and your budget. Other than buying things to help you make money (like new clothes for a new job), you can’t convince me Afterpay is a good idea. 

If you want to learn more about your money and how well you’re doing, grab our free Financial Wellness Audit. It will help you put all of your crumbs on the table and help you figure out how you’re doing with your money. 

It will relieve the anxiety and stress you have about your money. It’s free so what are you waiting for? It’s time to be free from money anxiety. You can grab your free copy HERE. 


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