How Does Afterpay Work? Everything You Need to Know Before You Use It

Large purchases can be a brutal hit to your wallet. But what if you could split a single purchase into multiple small payments? With Afterpay, you can shop in-store or online with partnered retailers, breaking large purchases into smaller interest-free payments.

We’ll explore Afterpay, one of many buy now, pay later apps, and examine whether it could be the right fit for you. Budgeting for a large purchase is generally the best advice, but sometimes you need to make an immediate purchase, and Afterpay could be the solution.

But is Afterpay as good as it sounds, or is it too good to be true?

What Is Afterpay?

Now owned by Cash App, Cash App Afterpay is a buy now, pay later service. An alternative to credit cards and personal loans and very popular among Millennials and Gen-Z, Afterpay allows you to make purchases and pay them off over time. If you have a large purchase, Afterpay can split it into smaller, more manageable payments.

Afterpay offers Pay in 4 financing — you make four interest-free payments over time. Afterpay also has a Pay Monthly option, which allows consumers to finance purchases of $100 or more over three, six, 12 or 24 months, but you’ll pay interest.

You can shop online or at supported in-store locations. Some in-store Afterpay partners include PetSmart, Bed Bath & Beyond, Sephora, Urban Outfitters, DSW and Nordstrom Rack. Check Afterpay’s website to find supported retailers near you.

If you shop online, you can purchase with retailer partners by clicking the Buy Now, Pay Later option at checkout.

How Does Afterpay Work?

We recommend beginning your purchase by downloading the Afterpay app. You can visit some retailers’ websites directly to shop, but not all stores support buying outside the Afterpay app. The app will let you view your approved purchase limit and shopping discounts.

At checkout, select the Buy Now, Pay Later button to make the purchase with Afterpay as your payment method. You may need to verify your account information and add a bank account or debit card. Approval is instant, but not guaranteed.

If you are shopping in-store with a supported retailer, you’ll need to generate a virtual credit card by visiting the In-Store tab in the Afterpay app. Begin by tapping the Set up the Afterpay Card button and following the instructions.

You can then use the virtual card via Apple Pay or Google Pay to make your in-store purchase.

There is no service fee to use Afterpay, and Pay in 4 purchases are financed interest-free. Pay in 4 Afterpay purchases are split into four payments, payable every two weeks. At checkout, you will be responsible for the first payment (consider this the down payment). From the original payment date, installment payments will be due on your Afterpay account every two weeks for the next six weeks.

Who Can Use Afterpay?

To use Afterpay, you must be a U.S. resident 18 years or older with a credit or debit card.

Afterpay does not require a hard credit check and no minimum credit score is required. While other BNPL services may affect your credit score, Afterpay does not report to credit bureaus.

Is Afterpay Safe and Legit?

Yes, Afterpay is both safe and legit.

It’s widely used by major retailers. In terms of data safety, Afterpay has achieved the highest level of payment data security in the world — Data Security Standard Level 1 — set by the PCI Global Security Standards Council.

While it’s safe to use, though, it can be misused. Stacking too many Afterpay purchases can make them harder to keep track of, increasing the potential to miss a payment.

What Happens If You Miss a Payment?

The only fee we could discover with Afterpay is a late fee if you miss a scheduled payment. Late fees are capped at 25% in the United States.

For orders below $40 paid with Afterpay, you’ll only ever pay a $5 late fee. For orders over $40, each time an installment is late, a $10 fee will be charged. If the installment isn’t paid seven days after the due date, a fee of up to $7 will be incurred. It’s the same for all installments until the 25% cap or $68 is reached.

Once you miss installment payments, Afterpay will stop approving purchases to avoid you plunging further into debt. Additionally, Afterpay may prevent people from purchasing too much by denying purchases. You can reschedule Afterpay payments if needed.

Does Afterpay Affect Your Credit Score?

As mentioned above, Afterpay does a soft credit check and does not report to the credit bureaus, which means it can’t affect your credit negatively or positively. That may change in the future, though.

According to the Afterpay website: “Afterpay does not currently report to credit bureaus in the United States, and we won’t until we see concrete evidence that BNPL data reflecting responsible payment behavior will help, not hurt, the credit scores of our customers.”

Alternatives to Afterpay

We recommend Afterpay to shoppers looking to split a large purchase into smaller, more manageable payments. However, it may not be the right choice for everyone as it’s not available at every retailer. Here are a few other services you may want to consider.

Other Buy Now, Pay Later Services

Afterpay isn’t the only buy now, pay later service available as a shopping partner. Different options have popped up to offer a short-term, no-interest payment method. Those options include Affirm, Klarna, PayPal and Sezzle.

Here is how Afterpay stacks up against some of the most popular options:

Additional Afterpay Alternatives

If a buy now, pay later service isn’t the best choice for your particular purchase, you may want to consider a more traditional option. Personal loans enable you to borrow money while establishing a credit history as they report to credit bureaus.

The downside to personal loans is that they are rarely interest-free, but you may be able to finance larger purchases.

Another option for large purchases is a zero-interest credit card. You can also use cash-back credit cards to earn money for every purchase.

Final Thoughts: Should You Use Afterpay?

Afterpay is a solid tool if you need to break up larger purchases into smaller ones while paying no interest.

However, best for disciplined consumers who have consistent incomes. Some best practices for using Afterpay include:

• Using it for essentials, not impulse buys.
• Using it responsibly: Track and include payments in your budget.
• Don’t stack purchases: Too many BNPL loans increase the possibility of missing a payment or overwhelming your budget.

Frequently Asked Questions (FAQs) About Afterpay

Michael Archambault is a senior writer for The Penny Hoarder specializing in technology.