What is Afterpay?

Afterpay is part of a new wave of ‘Buy now, Pay later’ apps and online wallets that is sweeping the world.

Afterpay allows you to buy goods or services now and pay for them later. You buy or collect goods and services from participating businesses, then pay in four equal instalments instead of upfront.

Afterpay works like a traditional lay-by service, except that you usually don’t have to wait until you’ve paid the final instalment to get the item.

Retailers and service providers pay fees to Afterpay while buyers pay nothing, if all goes well. 

Afterpay has a relatively easy five-minute sign-up process and app. You need to link Afterpay to a Visa or Mastercard credit card or debit card. You can’t link your Afterpay account directly to your bank account, except via a Visa or Mastercard debit card. And you can’t use BPAY, direct debit, American Express or Pre-Paid cards with Afterpay.

Afterpay says 90 per cent of users link their account to a debit card.

“Afterpay is a great Aussie fintech start-up that is taking the world by storm,” said Vadim Taube, CEO of InfoChoice.

“Afterpay has millions of loyal users who love the service and use it regularly to make purchases, pay for services, medical bills and treatments and manage their spending.”

Is Afterpay a debt? Or is it credit?

Afterpay works like lay-by, except you get the goods or services up-front. Shops and businesses pay fees to Afterpay and consumers pay no interest or fees unless they are late with their payments.

Technically, Afterpay is short-term credit with no interest and lasting for less than 62 days, so is not regulated by the National Credit Code, according to Legalvision.com.au.

Nevertheless it is a contractual obligation for you to make four payments to Afterpay.

Afterpay assesses your ability to make the four repayments and usually wants to see at least 25 per cent of the purchase price sitting in your account on the day of the purchase. In the first six weeks of using Afterpay, users may be limited to small purchases.

Many Afterpay users link to their credit card so a lot of Afterpay purchases can end up costing interest if the costs are simply passed through to your credit card debt.

Afterpay accounts are paid over six weeks or a maximum of 56 days. Credit cards usually offer up to 55 days interest free, so if your Afterpay repayments are coming from your credit card you may well be paying interest.

Are there other ‘Buy now, Pay later’ services, like Afterpay, in Australia?

Yes, there is a growing number of competitors for Afterpay, like ZipPay and Openpay. More are expected to come into the market soon.

ZipPay gives you more control over your repayments than Afterpay does, while Openpay has longer plans and higher spending limits.

“Afterpay, and other ‘Buy now, Pay later’ services like Zip and Openpay, are attractive to young people, low income earners and people looking to manage their spending,” said Vadim Taube.

“There is no initial credit check, sign-up is quick and easy and they enable consumers to take home expensive items they may not otherwise be able to afford.”

Afterpay is very popular with young shoppers like Jessica from Melbourne.

“I've used Afterpay with much success and have never been hit with any of the fees,” Jessica told InfoChoice.

“It has been an especially great way to purchase items that are on sale or that I've needed for my business that I haven't had the immediate cash to purchase otherwise.”

Openpay targets an older, family-oriented demographic who want to manage their spending and their cash flow.

“We have a more nuanced approach to ‘buy now, pay later’ than some of our competitors,” Openpay CEO Dr Michael Eidel told InfoChoice.”

“We’re not primarily a source of funding for our customers, we see ourselves as more of a budgeting tool for people who earn their own money, have a family, a home, a car, a pet, etc and are looking for ways to manage those everyday expenses.

“Our main points of difference are flexibility and longer plans,” said Dr Eidel.

“We’re not primarily a source of funding for our customers, we see ourselves as more of a budgeting tool for people who earn their own money, have a family, a home, a car, a pet, etc and are looking for ways to manage those everyday expenses.


“Customers can tailor plan amount and length to their individual needs. For example, customers can choose a plan from two – 36 months and limits up to $20,000 – with no interest.

“Our customers also have the ability to change their instalment payments as they need – with no addi