Buy-now, pay-later financing allows shoppers to make purchases and pay them off over time. Afterpay, which was acquired by fintech giant Square (NYSE:SQ) in mid-August for $29 billion, is an Australian company that offers such loans free of interest. Originally launched in 2015, the platform now serves customers in Australia, New Zealand, the United States, Canada, and the United Kingdom. (Note: Afterpay shouldn’t be confused with AfterPay, a Swedish company that offers flexible payment options for European shoppers.) Here is how it works.

Key Takeaways

  • Afterpay is a company that offers short-term financing options to eligible shoppers at participating retailers.
  • Consumers can use Afterpay to shop online or in stores and pay for their purchases in installments over a six-week period.
  • Afterpay doesn’t charge shoppers any interest, but it can impose late fees if they don’t make their payments on time.

How Does Afterpay Work?

Afterpay allows eligible shoppers to buy now and pay later with no interest, no credit checks, and no fees when they pay on time. The service is available at thousands of retailers around the world through the Afterpay app.

When you make purchases with Afterpay, your payments are split into four installments. You make an initial down payment against the purchase, then you have a six-week period to make your remaining payments.

Afterpay doesn’t specify a minimum required purchase amount. However, you may be subject to purchase requirements set by the retailer you’re buying from.

To use the service online, you choose Afterpay as your payment method at checkout. You can create an Afterpay account instantly to make your first payment and complete the checkout process. After you check out, the items that you ordered will be shipped to you by the retailer.

To use Afterpay in physical stores, you need to download the Afterpay app and create an account, then tap the “Card” tab in the app. This allows you to create a digital Afterpay card that you can add to Apple Pay or Google Pay. You can then use either mobile wallet app to make your purchase.

After you make a purchase, you can log into the Afterpay app to see when your next payment is due and in what amount.

You can pay Afterpay using a debit or credit card, either manually through the Afterpay app or by setting up automatic payments.

Afterpay does not charge interest but can charge a fee if you pay late. The late fee for U.S. shoppers is capped at 25% of the order amount. There are no prepayment penalties or fees if you want to pay off an Afterpay loan early.

Common Questions About Afterpay

Here are the answers to some other common questions about how Afterpay works.

Can You Use Afterpay to Pay Bills?

Afterpay is meant to be used for online or in-store shopping only. So while you can use it to make purchases, you can’t use it to pay bills.

Is There a Credit Limit?

Afterpay uses flexible spending limits tailored to each customer and each purchase. The spending limit starts at around $500 but can increase over time, as you use the service to make purchases and pay them off.

Afterpay looks at a variety of factors to approve loans for purchases, including:

  • How long you’ve been using Afterpay
  • Whether you have sufficient funds to make the initial payment
  • Value of the order you want to place
  • Amount you have to pay off
  • Number of orders you currently have open

Does Afterpay Check Your Credit?

Unlike some buy-now, pay-later services, Afterpay does not perform credit checks when you apply for financing. This includes hard credit pulls or soft credit pulls. So you won’t see any credit score impact when you sign up for Afterpay or take out one of its loans.

Does Afterpay Report Activity to Credit Bureaus?

Ordinarily, if you make a late payment on a buy-now, pay-later arrangement, that would be reported to the credit bureaus as a negative. Afterpay, however, says it never reports late payments, so you won’t take a hit to your credit score if you forget to pay on time.

That said, you won’t be able to make any new purchases with Afterpay until your payments are caught up. Also, Afterpay can reduce your future spending limits once your past-due account is current again.

Is Afterpay Safe?

Afterpay says it uses the highest level of security in the payments industry. Specifically, it’s a PCI DSS (Payment Card Industry Data Security Standards) Level 1 certified compliant Service Provider Organization. In that regard, it should be safe to use.

What Retailers Accept Afterpay?

In the U.S., Afterpay works with a number of top retailers. You can find a full list on the Afterpay U.S. website, but here are some examples:

  • Adidas
  • American Eagle
  • Bed Bath & Beyond
  • Dillard’s
  • Forever 21
  • Gap
  • Ulta Beauty

How Do Returns Work?

If you want to return something that you purchased using Afterpay, then you’ll need to contact the merchant to find out how it handles returns and refunds. If you return an order and it’s refunded in full by the merchant, then Afterpay will cancel any remaining payments and refund any payments that you’ve already made. In case of partial refunds, Afterpay will adjust your remaining payments to reflect the amount that the merchant refunded.