Afterpay Review (Oct 2020): Lifesaver or Scam?

Does Afterpay Live Up to the Hype?

Afterpay is a new financing solution for clothing retailers and their customers. It provides shoppers some much-needed wriggle room with its buy-now, pay-later service.

In theory, this should make clothing more affordable, right?

In this Afterpay review, we're going to explore exactly that. Is this payment service too good to be true, or is it just another way to fall into debt?

Let’s take a look!

Who's Afterpay?

As we've just hinted at, Afterpay is a financing app for clothing retailers and their customers. The app was initially founded in Australia, 2015. It aims to make paying for products as fun and easy as shopping for them is.

Afterpay Review: How Does Afterpay Work?

afterpay homepage

The crux of Afterpay is that shoppers can settle their purchases across four installment payments. Customers just have to download the Afterpay app and set up an account. Simultaneously, retailers, both online and offline, can integrate with Afterpay to offer their customers this payment option.

Purchases as small as $35 can be broken down into four payments. These are interest-free. You just need to pay a 25% deposit. Then the items are yours straight away- just as they would be with a regular purchase!

In a world where payment flexibility is an asset, Afterpay sounds like a fab idea for putting more power into the hands of the consumer. Lots of us would welcome the option of paying for things via a manageable payment plan, rather than losing a bulk of our money in one go. Services like Afterpay empower shoppers to access retailers that otherwise (may) have been too expensive for them.

Afterpay acts as an intermediary between retailers and customers. Afterpay lends money to the retailer, and the customer pays them back. The product markets itself as a budgeting tool rather than a loan or credit card. The concept is similar to the old-fashioned layaway in stores, where shoppers had a product put aside for them, and they paid for it in increments until they were square. Only with Afterpay, you get the product immediately.

Afterpay Review: Afterpay's Four-Part Process

how does afterpay work

There are four steps to the Afterpay process:

  1. Shop
  2. Checkout
  3. Completing your purchase
  4. Paying for your purchase within four installments

Let's look at this in more detail…

1. Shop

In the United States, Afterpay is supported by over 3,300 retailers across fashion, beauty, accessories, and homeware niches. Browse your favorite brands, including ASOS, MAC, Karen Millen, Anthropologie, and Bare Minerals.

New customers are required to pay a 25% deposit upfront. However, this requirement is lifted after a short, “settling-in” period. The only stipulation Afterpay set is that your purchase comes to more than $35. New users also have a spending cap of $400-500, which can comprise orders from multiple retailers. After that, your Afterpay credit limit is capped at $2,000 (at any one time) – this applies to everyone.

2. Checkout with Afterpay

When your basket's full, and it’s time to check out, create your Afterpay account (if you haven't already).

Signing up for an account is free! And there aren't any credit checks, so there's no need for anyone to wade through your credit history. This is one of the reasons why approval is instant, making the process quick and easy.

Please note: You must be 18 or over to use Afterpay’s services.

3. Complete Your Purchase

Once you've created your Afterpay account, you’ll breeze through future checkouts.

4. Pay in Four Instalments

Afterpay's payment plan is interest-free (excluding late fees) – but, with their handy reminders, you’re not likely to knowingly miss a repayment!

Each installment is due every two weeks from the date of purchase, each amounting to 25% of the overall purchase price.

Afterpay Review: The Pros and Cons of Using Afterpay

Let's start with the perks…

The Pros 👍

Afterpay Seamlessly Integrates with Online Stores

Just choose Afterpay at the checkout, instead of your traditional credit or Visa debit card, and Afterpay takes care of the rest. You can even save it as your preferred payment method so that all future orders are processed with just a click.

Once you've registered with Afterpay, they'll verify your info, approve the transaction, and sort you out with a personalized payment plan. Shopping has never been easier!

Instant Approval

Afterpay doesn’t run credit checks on its customers, so the only details you need to provide Afterpay (when creating an account) are as follows:

  • A new username and secure password.
  • Your best contact number
  • Verification code (which they'll text to the above number straightaway).
  • Your name
  • Date of birth. (You must be at least 18)
  • Your bank details

Payments are Interest-Free

Afterpay prides itself on being a completely free service. Their app allows you to pay for clothes, cosmetics, furniture, even airfares across four fortnightly installments, empowering you to spread the cost of your splurge out over a month. Best of all, you don't spend a cent more than you would have done had you paid for the items upfront.

The only exception to this is when you're late making a repayment. Then, you're charged an $8 late fee. However, in comparison to traditional credit cards, this is considered cheap. Some lenders charge interest rates as high as 20% on every transaction. Competing services that allow incremental payments, like Affirm, are known to charge as much as 10% to 30% APR based on your credit score for up to 36 months.

Rest assured, Afterpay does everything within their power to remind you when payments are due. They send out alerts ahead of time, and the money comes out of your bank account automatically, meaning you don’t need to reauthorize the transaction.

What’s more, Afterpay is committed to responsible spending. If you're late on a payment, you won’t be able to use Afterpay again until all your outstanding expenses are up to date. The result? You can’t go on a spree and pile on more debt.

The Cons 👎

Now for the drawbacks of using Afterpay…

Afterpay Encourages Impulse Purchases

Although Afterpay isn't responsible for the poor financial management of its userbase, there's no denying that it encourages a certain degree of fiscal irresponsibility. Unlike the stores it promotes, this service doesn't directly sell shoes or clothes or makeup, or things for the home. Instead, it endorses a particular kind of mentality—buy now, pay later. Impulse buying often seems appealing at the time, but it may actually leave you with a pile of things you don’t need or necessarily even want.

Late Payment Fees Apply

Afterpay doesn’t charge its user's interest, so they have to make their profits in other places – and late payment fees are where they make most of their money.

If your card is declined the day your payment's due to go out, Afterpay gives you a grace period of 24 hours, during which time you can log in and push the transaction through manually without incurring any fees. However, once those 24 hours are up, you're slapped with an $8 late fee. If you haven't paid seven days after the due date, a further $8 is added to the total owing.

So, let's say you missed all four repayments on a $300 purchase; you would then be liable to pay a further $64 in late fees, which is over 20% of your original spending. Now, imagine you weren’t prepared for these expenses next month, and you made more than one such purchase. Suddenly, several late fees will hit you out of the blue, leaving you in a precarious financial situation.

Sadly, this isn't a rare occurrence, either. Make no mistake! Afterpay made a fifth of its revenue from late fees alone in the first half of 2018. This is no surprise either, considering just how easy Afterpay makes it to spend.

You Can’t Pick When You Pay

For some users, this is one of the pros of Afterpay. The company takes care of everything, including your repayment schedule, so you spend less time internet banking and more time tracking your deliveries. (What do you mean it hasn’t been dispatched yet? I placed my order thirty whole seconds ago!).

However, for the more money-conscious shoppers reading this Afterpay review, you might prefer to organize your own payment schedule and set up a direct debit on a day (like payday) that suits you. That’s where standard credit cards have the advantage; you can set up your own transfers and be confident there will be money in your account when it’s payout time!

By controlling the whole process from their end, Afterpay leaves you vulnerable to late fees (see above!) and overdraft charges from your bank or building society. They may not charge interest themselves, but if you overspend on your card and Afterpay's repayment structure doesn’t fall in line with your own personal payment schedule, you could be looking at some pretty hefty additional charges coming from elsewhere.

Minimal Credit Checks

Because Afterpay doesn't require you to undergo any credit check before signing up, they are, in a way, enabling people with poor credit to carry on with the kind of spending that (may) have got them into debt in the first place.

If you have a history of excessive spending with buy-now-pay-later services, think twice about signing up for Afterpay because there's minimal support in place to help you shop responsibly.

Afterpay Can Affect Your Ability to Apply for Loans

Don’t be lulled into a false sense of security by the fact that a.) Afterpay doesn't run credit checks on anyone applying to use its service, or b.) using Afterpay can’t technically affect your credit score.

Lenders, such as those who distribute home loans and mortgages, still count buy-now-pay-later schemes (like Afterpay) as a line of credit. After all, you're still borrowing money you don't technically have as such; lenders will consider the state of your Afterpay account while evaluating whether to grant you a loan.

Sadly, there are cautionary tales about people being denied assistance for poor credit, having used services like Afterpay. So do beware and be mindful of buying only what you can afford to pay back; otherwise, your credit score may take a knock.

Spending Limits

Admittedly, this one's a bit of a double-edged sword. In one way, Afterpay's spending limits prevent users from spending lots despite their struggle to make repayments. These caps help to prevent shoppers from borrowing too much money and getting themselves into a sea of financial bother.

However, if you're a long-term user of Afterpay and you'rere good at paying back the money on time, these restrictions may seem overly arduous.

Individual spending limits are set via Afterpay's automatic system. This sets out how much you're allowed to borrow and spend based on your repayment history using the site. This should mean responsible users can spend significant amounts of money (up to $2,000) without getting blocked. However, several Trustpilot reviews highlight that this isn’t always the case, and has led to some frustration with disgruntled users.

Speaking of reviews, that leads us nicely onto the next section of this blog post…

Afterpay Review: Customer Reviews

Afterpay has a 4.9-star rating on Trustpilot. Here, a staggering 97% of reviewers rate the service as “Excellent” or “Great.”

Overall, it's praised for its convenience, and users love it for its accessibility and reasonable repayment plans.

That being said, here's a more specific look at what Afterpay users have to say:

“Great way to buy designer clothing and unique houseware at affordable pricing and pay schedules!!”

“Great way to budget with no interest!!”

“I love using Afterpay vs. the other services out there because there are no interest fees, they send you friendly payment reminders, and it is charged bi-weekly instead of weekly.”

One user even went as far as to say, “Afterpay is the best invention ever.” Thomas Edison, eat your heart out…

Although, of course, not everyone has been quite as blown away by the service Afterpay provides. Some of the more negative reviews include comments like…

One user described the company as “deceptive,” claiming that they were “hit with fees on numerous occasions” and warned others who might be considering signing up for Afterpay that “it’s a very misleading service.” Their verdict? You’re better off just buying things outright!

Some even went as far as to say they’d give no or minus stars.

“If I could give less than [one star], I would,” wrote one Trustpilot reviewer. “Unethical and no customer service whatsoever.”

This view that Afterpay's customer service is somewhat lacking is backed up by several other accounts of rudeness, as well as reports of customer support reps lacking the know-how to provide users with sufficient help.

“Horrible customer service,” another user writes. “Takes days to get a response. Claim they never got a payment from me when it clearly shows it was paid to Afterpay and came out of my account. […] No offense to the customer service reps that I’ve spoken to, but no one knows what they’re talking about or how even to be remotely helpful. […] Very disappointed as this was a great concept.”

So, what about Afterpay's often-criticized customer support? What kind of customer service is on offer…

Afterpay Review: Customer Service

afterpay customer service

Since money's involved, there are occasions where you'll urgently need to get in touch with the Afterpay team. So how does their customer service hold up?

Truth be told, Afterpay's customer service is lacking – especially when you consider the delicate nature of their business. On their website, you can submit a support request, where you can choose from a list of topics to specify why you're getting in touch. Then you have to sit and wait to receive an email back from them.

The company’s FAQ section also lists a phone number for their customer service. They can be reached Monday to Friday, from 7 am to 7 pm CST, and on Saturdays from 9 am to 5 pm. However, even in this section, they recommend you use their ticket service instead.

Afterpay Review: Afterpay for Merchants

If you're curious how Afterpay works on the merchant side of things, Afterpay swallows the risk of fraud and poor credit and pays merchants directly for any products purchased through Afterpay. This allows retailers to go ahead and ship their products out as they usually would -risk-free. A merchant fee of 4% per transaction is calculated and deducted before the payout is settled.

Afterpay Review: FAQ

Last but not least, we're going to wrap up this Afterpay review by answering some of the most frequently asked questions we've heard about this Australian buy-now-pay-later scheme.

How does Afterpay make money?

If you’re worried Afterpay sounds too good to be true, you might prudently be asking how the company makes its money.

Afterpay answers this clearly by stating they focus on charging retailers rather than customers. As long as you pay your fortnightly installments back on time, there are no fees taken from you as the shopper. However, late fees certainly contribute to Afterpay’s revenue – so don't get caught out!

What do I do if I cannot pay?

In most circumstances, Afterpay will hit you with a late fee as described above. This could quickly build up to a considerable amount, especially if you've made multiple purchases. Afterpay does have a financial hardship policy; however, this has been described by some users as unclear.

Afterpay's website states that under unique circumstances you might be able to delay your payments, remove late fees, or pay more installations at a lower price. Afterpay’s hardship policies might apply if you're suffering as a result of a natural disaster, unemployment, domestic violence, or a medical condition. If any of these circumstances apply to you, Afterpay encourages you to reach out, so they can discuss your options.

Can I change the payment date?

Afterpay has recently made it possible to change the date that payments are withdrawn from your bank. You can do this via their mobile app or website. Just open the order you wish to change and choose a new date. You still have to pay in two-week increments, and the payment date will at first default to two weeks from your first payment.

Unfortunately, these restrictions still make it a little less transparent than the transfer dates you can set with credit cards. However, it's a step in the right direction.

What if my order exceeds the spending limit?

If you want to purchase something more expensive than your spending limit, the first payment might be higher than the subsequent ones. However, Afterpay will communicate to you your payment plan before you place your order – so rest assured, there shouldn't be any nasty surprises!

That being said, being able to pay a higher initial payment is only available under specific circumstances. This kind of arrangement is unique to each order, and Afterpay doesn't specify the mysterious range of factors it considers for making these decisions.

How do returns and refunds work if I paid using Afterpay?

The quality and security of goods still remain the sole responsibility of the retailer. As such, you'll have to contact the merchant directly if a delivery is late or products arrive damaged. Be sure to take a look at the individual refund and returns policies of the retailers you've shopped with for more precise instructions.

But what happens if you refund an order before completing your Afterpay payment plan?

In short, your payments will be adjusted from the fourth payment backward. If you're due a full refund on your order, all future payments are canceled, and paid increments will be returned to your card.

However, partial refunds are more complex. For example, if you're refunded $80 on a $100 product, your $25 payments are adjusted to $20. If your first payment covered the cost of $20 still owed to the retailer, you would be refunded $5, and your future payments are canceled. Make sense?

Afterpay Review: Our Final Thoughts on Afterpay's Financial Services

So, it seems that both champions and critics can agree on one thing: Afterpay is an incredible idea. When it works, it works absolute wonders, but when something goes wrong, you might be in trouble.

In the end, any budgeting or payment plan relies on your ability as a responsible spender to budget your own money. This means you should only proceed with Afterpay if you have a clear idea of when money will come in and out of your account. Always consider the risk of unexpected expenses and be safe rather than sorry. We also suggest reading the fine print first, so that you know exactly what you're taking on before committing your hard-earned cash.

If we've learned anything from Afterpay's customer reviews is that their customer service isn't great, so our advice is to process with caution. Afterpay is an excellent solution if you want to buy designer clothes, accessories, and furnishings, using a more affordable framework, but maybe keep your orders on the smaller side until you're satisfied for yourself with the kind of service Afterpay offers. With close to 100% of reviewers having nothing negative to say about the service at all, we’d say it’s more than safe enough to give this a try!

Have you used Afterpay before or are you thinking of giving them a try? If so, let us know in the comments box below. We'd love to hear from you!

Rosie Greaves

Rosie Greaves is a professional content strategist who specializes in all things digital marketing, B2B, and lifestyle. In addition to e-commerce platforms, you can find her published on Reader's Digest, G2, and Judicious Inc. Check out her website Blog with Rosie for more information.