In this article, we’re answering “How does Afterpay work?” First of all, as the name suggests, Afterpay allows consumers to unlock a “buy now, pay later” service across a wide range of retail outlets.
That said, Afterpay is not available everywhere and there are important variables that consumers should consider prior to using Afterpay at checkout.
We’ll dig into these variables and share where Afterpay is available below. And, we will also be answering common questions we receive on the topic.
This article is part of our free series on opening digital bank accounts, including our guide on opening an online USD bank account, which you can access here.
Feel free to use the table of contents to jump ahead to the sections most relevant to you.
Table of Contents
- How Does Afterpay Work?
- What Is the Downside of Afterpay?
- Frequently Asked Questions
- Do You Want Help Opening Bank Accounts?
How Does Afterpay Work?
Afterpay is a payment plan provider that allows consumers to unlock “buy now, pay later” options on e-commerce and retail stores interest-free. In doing so, Afterpay (and similar companies) offer an additional layer of financial flexibility to online shopping.
Importantly, one of the main distinctions between Afterpay and other short-term credit facilities like credit cards, is that Afterpay does not charge interest. And, instead of paying down debt over time through minimum payments, Afterpay requires regular installments along a payment schedule. Unlike Venmo, which is a digital wallet and payment gateway for sending money to your mobile to complete a purchase.
From a consumer perspective, there is another benefit as well which is that late payments are not reported to credit bureaus. As a result, an individual will not be penalized for missing a payment in the same way that they would be with a credit card.
As for the businesses that enable Afterpay, it directly integrates with the business’s existing checkout process, offering short-term consumer financing directly in the shopping cart.
What Is the Downside of Afterpay?
There are several important downsides of Afterpay that consumers should consider prior to selecting this option at checkout. Like credit cards, the majority of these disadvantages revolve around the poor financial behaviors that access to Afterpay allows, which include:
- Spending beyond your means
- Late fees for missed payments
- Potential for accumulating debt
- Complex terms and conditions
- Encourages impulsive behavior
- A limited selection of merchants
Here is a closer look at a few of these key disadvantages.
Fees Can Apply
If you miss a payment, Afterpay will charge you a late fee. While late fees do not negatively impact your credit score with Afterpay, they do result in you paying more for the original product than it actually costs.
No Choice On When to Pay
Afterpay sets a payment schedule with payment installments that need to be paid. This is very different from the repayment flexibility of a credit card, which allows you to pay when you are ready as long as you meet the minimum monthly payment requirement.
Other Disadvantages to Afterpay
As mentioned, there is a wide range of other disadvantages to using Afterpay, ranging from encouraging impulse behaviors to a limited selection of merchants being available. So, if you are considering Afterpay for an upcoming purchase, don’t forget to think through these disadvantages first.
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Frequently Asked Questions
Below are a few of the most common questions we receive from people looking into how afterpay works. If you have further questions you would like to ask our team, don’t hesitate to get in touch.
How Does Afterpay Work the First Time?
When starting the checkout process, you can select Afterpay from the checkout menu. Then you will need to create an account, link a payment method, and confirm eligibility. After this process is complete, you can complete the purchase. The first payment will be dedicated immediately and the following three payments will be deducted from your payment method every two weeks.
Is It a Good Idea to Use Afterpay?
Afterpay is a good idea if you need to complete a purchase and do not currently have the funds to make the purchase. However, Afterpay can also be a bad idea because it encourages impulse purchases and can result in late fees which contribute to a higher purchase price than the original item.
Can You Use Afterpay With No Money In Your Account?
No, you cannot use Afterpay with no money in your account because you will need to make the initial purchase at the time of checkout. As a result, you will need to have at least a portion of the total purchase price in your account at the time of checkout. The specific portion that needs to be in your account can vary but it is usually around 25%.
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