How Does Afterpay Work? An Expert Weighs In

If you've been shopping online any time in the past several years, you've probably seen Afterpay featured as a payment method on the checkout page. You may have even been tempted to try it out if you wanted a flexible way to afford your purchase. And if so, you're not alone. With the rising cost of, well, everything, every little bit helps.

"Buy now, pay later" (BNPL) platforms like Afterpay, Affirm, and Klarna have grown in popularity as shoppers search for different payment options. With Afterpay, you split your total purchase into four interest-free installments. It's fairly easy to use and offers a convenient alternative to credit cards for managing short-term expenses. But like any financial tool, understanding how it works and its potential drawbacks is crucial to making informed spending decisions.

But, how does Afterpay work, and is it the right payment method for you? Financial expert Kristy Kim says that Afterpay "provides spending power for customers who don't have access to large amounts of cash or credit, and can make shopping for what you need in an emergency possible." Kim does, however, warn that there are some risks to relying too heavily on BNPL services.

Here's what you need to know about how Afterpay works and if it's safe for shoppers.

Experts Featured in This Article

Kristy Kim is the CEO and founder of TomoCredit.

What Is Afterpay?

Afterpay is a BNPL service that lets you purchase products immediately and pay for them in four equal, interest-free payments over six weeks. Instead of paying upfront at checkout with a debit or credit card, you instead select Afterpay, making your first payment at checkout while Afterpay covers the remaining balance (for now). Then, you repay Afterpay in subsequent bi-weekly installments.

The service is available through thousands of retailers across multiple industries including fashion, beauty, home goods, and even travel. Major retailers that offer Afterpay include Anthropologie, Nordstrom, Ulta Beauty, Wayfair, and Dick's Sporting Goods. Even select small brands and boutiques also allow customers to choose Afterpay at checkout.

How Does Afterpay Work?

Using the app is quite simple and — unlike some other BNPL platforms — doesn't require a credit check. You can set up an account on Afterpay's app or website by entering your name, email, phone number, and payment method. Choose from any of the brand's partnered retailers and select Afterpay at checkout.

At purchase, you'll make your first payment, which is 25 percent of the total purchase amount. The remaining balance is divided into three equal payments that are automatically withdrawn every two weeks. Afterpay will notify you via text and email a few days before withdrawal and after the payment has been received. As a bonus, Afterpay doesn't charge interest but you will incur a fee for any late payments.

Kim says one of the major benefits of Afterpay is that it's "easier to manage cash flow and afford items without upfront financial strain." In addition, she notes the platform's accessibility. "The straightforward application process and lack of credit checks for most users make it accessible, even for those with limited or poor credit history."

While no interest on payments and instant gratification stand out as other pros of Afterpay, there are some serious cons and drawbacks to be aware of. "Afterpay may encourage impulse buying," Kim says, "as users might overestimate their ability to pay installments on time. It may also impact spending discipline, as it's easier to defer payments than to save and budget for purchases."

As people get comfortable using BNPL platforms, it can become a bigger problem. Kim adds, "Excessive use of buy-now-pay-later services like Afterpay can lead to accumulated financial obligations across multiple platforms, creating a debt snowball effect."

Is Afterpay Safe to Use?

Financial use online can come with some red flags, but luckily Afterpay is a legit BNPL platform that's safe and secure. The platform uses security measures like encryption to protect your data and transactions.

Another major consideration when using Afterpay is how it could impact your credit score. While the platform doesn't run a credit check, you're not entirely out of the woods with credit bureaus. Kim says, "Missed payments or unpaid balances could indirectly affect your credit if Afterpay escalates the issue to debt collection agencies, which may report it."

Using Afterpay responsibly is the best way to go, but Kim warns that "over-reliance on such services could strain your finances and make it harder to manage other credit obligations." If you know you can handle the payments and plan to be responsible with your Afterpay usage, however, it can be a convenient option to lessen the financial burden and budget your spending.