You want it so you buy it with plastic. You just wish that you didn’t have to pay it all at once or risk high-interest credit card debt. Fintech has a solution for you: buy now, pay later (BNPL). That is why Afterpay is growing so fast and has now come to Canada.
Afterpay has partnered with a wide range of retailers both online and offline. It’s part of the BNPL or point-of-sale (POS) financing which has exploded online and in stores. Fueled by consumers’ desire to buy impulse or big ticket items and escape the clutches of credit cards, stores now offer BNPL options that enable interest-free installment payments for everyday shopping.
What is Afterpay?
Afterpay offers POS loans to consumers to help finance their purchases at participating retail stores. Users can pay for their purchase in a series of 4 equal installments. It is a competitor to Scotia’s SelectPay, Paybright, and Paypal’s Pay in 4.
Afterpay started in Sydney, Australia in 2014. Its installment payment business model proved appealing to consumers seeking a viable alternative to credit cards. Having achieved substantial growth, the firm went public in 2016 and later expanded operations into the U.S., U.K, New Zealand, and most recently, Canada.
Today, the company serves millions of customers globally and employs more than 700 people. It’s particularly popular with millennials and Generation Z. After nearly a decade, Afterpay is poised to get even more popular thanks to its expansion into Canada. What shopper wouldn’t like interest-free financing with no late fees?
How does Afterpay work?
Aftepay’s financing model is simple. When you arrive at the checkout, you select Afterpay as your payment method, and the price of your items is divided into four equal installments. Your first installment, which is 25% of the purchase price, is due immediately.
The other three installments are paid over six weeks, with one due every two weeks. Installments are charged automatically to your bank account or credit card, whichever you choose at checkout. As a result, you don’t have to worry about forgetting to pay.
Afterpay provides you with a modest credit limit, usually around $100, when you first start using the service. However, once you establish a solid payment routine, they’ll gradually increase it to a maximum of $2,000. In that sense, it works like a credit card: over time, if you show your issuer that you are responsible, they might reward you with a higher credit limit.
Afterpay pays merchants the full price of your bill, less a service fee, immediately. That sevice fee is how Afterpay makes money. Once your purchase is complete, you have no further financial obligation to the merchant, only to Afterpay. You own your purchase outright when you make your first installment payment at checkout.
What are the benefits of using Afterpay?
- No interest – Unlike a credit card or other loan product, Afterpay doesn’t charge interest on any outstanding balance.
- No fees – If fees are a pet peeve of yours, you’ll be happy to know that you’ll never see one on your Afterpay account statement. As per Afterpay’s installment agreement for Canadian users, you won’t be responsible for paying any finance charges, late fees, Non-Sufficient Fund (NSF) fees, or processing fees. There are late fees charged to American and Australian users, which may apply to Canadian accounts in the future.
- Fast and easy application – You can have your Afterpay account up and running in just a few minutes. The company doesn’t perform a hard credit inquiry when evaluating your application, which benefits your credit score.
- Payment flexibility – You can make additional payments throughout your payment period, including the entire balance if you want. Afterpay will adjust your payment schedule accordingly to reflect any prepayments.
- Payment rescheduling – One of Afterpay’s latest features is payment rescheduling, which allows you to change a payment due date. Should you be low on funds, you can choose to pay less and defer your balance to a future installment.
- Help with payment management – Suppose you’re experiencing financial hardship and struggling to keep up with your payments. You can consult with Afterpay to arrange an alternative payment schedule. The fact that you can directly speak with a company representative to address payment issues is not only helpful but commendable from a customer relations perspective.
- Automatic payments – Installment payments are automatically charged to your credit card or deducted from your bank account, so there’s no need to fret about missed payments.
Afterpay pitfalls to watch out for
Like any form of financing, you have to pay back what you borrow. What else do users have to know about using Afterpay?
Freezing or terminating your account
If you fail to make installment payments on time, Afterpay will stop you from adding more purchases. Once you catch up with your payments, you can use Afterpay again. The company also reserves the right to terminate your account altogether if payment issues persist for an extended period.
You have smaller credit limits
Be aware that Afterpay provides credit limits that are much smaller than those typically offered by credit cards. The highest credit limit is $2,000, and each purchase is limited to $1,500. If your financing needs exceed this amount, you’d be better off with a credit card or a line of credit.
You cannot build or fix your credit score
Suppose you’re looking to establish or improve your credit score by cultivating a positive payment history. In that case, Afterpay won’t help you. The company doesn’t report payments to credit bureaus, so paying on time won’t work to boost your credit score. However, the same policy applies to late payments, so you can be at ease knowing should you have past-due installments on your account.
What are the Afterpay eligibility criteria?
To use Afterpay, you must meet the following eligibility criteria:
- Be at least 18 years of age (or 19 in certain provinces or territories)
- Be a resident of Canada
- Have a valid email address and mobile phone number
- Have a valid Canadian address
- Have a valid debit or credit card
- Have sufficient funds to cover the first installment of your purchase
How to open and use an Afterpay account
The process of registering your Afterpay account begins during your first purchase using the service. It’s fast, easy, and requires no credit check. Here are the steps:
Step 1: Select Afterpay as your payment method at checkout.
Step 2: A new window will appear, prompting you to sign up. Enter your email, phone number, and other required details.
Step 3: Once your information is processed, and your account approved, you’ll be able to make your purchase and pay for your first installment immediately.
Step 4: Head over to Afterpay’s website or use the mobile app to create a password for your account. You can then use your login details when conducting future purchases.
Step 5: Pay your remaining installments according to your payment schedule which is three bi-weekly payments over six weeks. Afterpay will send you reminders as each due date approaches.
Afterpay provides a flexible, convenient, straightforward, and cheap financing option, a welcome alternative in a market saturated with credit cards. You own your purchases immediately with only 25% paid upfront. This feature is especially helpful when you lack the funds to make a full payment for an essential or pricey item.
With Afterpay, you can use your bank card and avoid credit cards altogether. With zero-interest charges or late fees, or any fees, for that matter, using Afterpay is a no-brainer when you’re briefly short on cash. Though you aren’t subject to interest charges and late fees in Canada, you must still be financially responsible when using Afterpay.
Taking care your financial responsibilities means budgeting so you achieve all your goals, including saving. If a sizable chunk of your monthly income is devoted to settling installment payments, you’ll have fewer funds leftover to pay your bills, invest, or set aside for an emergency account. Afterpay cannot save for you.
Also, the window to pay back the money is short. Every six weeks, or 3 two-week pay periods, is all you have unless you make other arrangements. If you don’t have the full amount in savings already, you have to plan how you are going to accumulate the full amount. Overall, though, Afterpay is a great payment option.