What is Afterpay? Your ultimate guide to modern layby.


Whether you’ve seen the logo on a bus ad or noticed it when perusing The Iconic, you’re bound to have heard of Buy Now, Pay Later (BNPL) giant, Afterpay. But what is it exactly, and are there risks involved with dodging the upfront cost of a shopping spree?

To help you make sense of this new payment service, we’ve jotted down some of the most commonly asked questions Aussies have with Afterpay.

What is Afterpay?

Think of it like a modern version of layby. Afterpay breaks up your purchases into four equal, installments that are directly debited from your credit or debit card. So for instance, if you want to purchase a leather jacket worth $400, rather than forking out the total amount upfront, your first Afterpay payment would only be $100 (25% of the item amount).

And here’s another upside to this new, innovative service: unlike traditional laybys where you can’t take home your purchase until you clear the balance, Afterpay lets you have your items right away.

Will I be charged interest for my purchases?

Nope! That’s one of the perks of signing up to a BNPL service, like Afterpay.

Does Afterpay charge any fees?

Although Afterpay doesn’t charge any monthly or establishment fees, you will be charged an initial $10 late payment fee if you default on an installment. A further $7 late payment fee applies if the installment is not paid within seven days after the due date. 

For orders below $40, only one maximum $10 fee applies, however for orders over $40, the total number of late fees that may be charged are capped at 25% of the order value or $68 (whichever is less).

Who accepts Afterpay?

The better question is, who doesn't accept Afterpay? As it is one of the biggest BNPL services in Australia, hundreds of retailers have signed up to accept the services. Some of the big names you might recognise are Tony Bianco, Myer, Bing Lee and Kogan.

Which cards are accepted?

At the time of writing, Afterpay accepts Mastercard and Visa credit and debit cards issued in Australia. And more recently, Afterpay announced that it would accepting American Express, allowing customers to earn rewards points on their Afterpay purchases. However, travel prepaid cards, foreign debit and credit cards are also excluded from the service.

How do I use it?

As Afterpay can be used both instore and online, different methods apply at the checkout.

Online: When you’re ready to make your purchase, just select Afterpay as your payment choice at the checkout - you’lll then be redirected to its website. If it’s your first time using the service, you may need to input your name and card details. Once those are in, place your order and viola! 

As your are a new customer, you may be asked to pay the first installment at the time of purchase, however those who have proven to be a reliable customer may be able to delay the initial payment for the two weeks.

In store: At participating stores, the process is slightly different. Use your smartphone to visit the Afterpay website and login (or sign up and login). Next, choose how much you want to spend and Afterpay will generate a unique barcode for the merchant to scan when you make a purchase. 

Tip on Afterpay barcodes:
Don’t create your payment barcode until you know exactly what you’re going to buy, so the numbers add up. Barcodes expire once they’ve been used, even if there’s money left over. Keep in mind, the lifespan of an Afterpay barcode is 12 hours, and once it dies you won’t be charged.

Is there a purchase limit?

Afterpay calculates a limit based on what it knows about you and your account, and retailers may put a cap on purchase limits. However, neither Afterpay nor retailers have access to your credit history.

Can I choose my payment schedule?

No, you cannot set your own repayment schedule. However you are able to change the date of a repayment. All you have to do in the Afterpay app is select the order and date you’d like changed. Just keep in mind that you are only able to do this once for every order and that this feature is not available to new Afterpay customers.

Can I make extra payments?

Yes, you can. Simply login to your account online or via the app to authorise an early payment. There are no fees for bringing the balance down to zero before those payment due dates are up, either.

Can Afterpay affect my credit rating?

Yes it can, but this all comes down to how you use the account. If you use the account responsibly, you won’t have to worry about Afterpay leaving a black mark on your credit history. However if you frequently miss or default on repayments, Afterpay reserves the right to report this negative activity to credit rating bureaus, which could result in a dent in your credit file.  

Plus if you opt to link your credit card to your account and don’t pay the balance off in full, you could start to attract interest on your Afterpay spending. If you do this often enough, this might also contribute to a poor credit rating.

How does Afterpay make money?

Afterpay doesn’t charge customers an annual or service fee, the BNPL company instead makes money by charging retailers fees to use its service. However, it’s worth noting that Afterpay makes majority of its money through late payment fees. 

In fact, according to an ASIC market update report on Buy Now Pay Later, 20% of Afterpay’s revenue during the 2018/19 financial year came from late payment fees - the remaining 80% was via merchant fees.

How safe is Afterpay?

Afterpay is subject to the Privacy Act 1988 (Cth), plus the Australian Privacy Principles (APPs) and wherever necessary, the Privacy (Credit Reporting) Code 2014. All three of these laws give an outline to the standard rights and obligations the BNPL has around a customer’s personal details and the way they use it. 

Aside from this, the Afterpay website says it has “achieved the highest level of payment data security in the world”. They also do regular monitoring and testing to ensure its software is functioning normally. 

Of course, if you notice any unusual activity on your account notify your card provider and Afterpay as soon as possible. Note that if your card gets lost or stolen, you must login and change your payment details to an alternative card.

Learn more about how BNPL services protect and store you personal details by having a read of our Buy Now Pay Later safety and security article.

What happens if an automatic payment doesn’t go through?

That’s when those late payment fees can kick in. Afterpay will notify you by email if a payment has failed. You have until midnight that day to pay, whether that’s by choosing a different card or topping up your account and trying again.

What if I want to return something or get a partial refund?

Return your items as you normally would, following the retailer’s policy, and they will contact Afterpay for you. Future payments will get cancelled and you’ll be reimbursed for what you’ve paid so far. But sit tight, as you probably won’t see the funds cleared in your account until 48 hours have elapsed since Afterpay was first notified.

Can an Afterpay transaction get declined?

If you have too many orders on-the-go or outstanding payments, you may not be able to place another order online or buy a product in store.

The verdict:

Afterpay is a convenient way to shop, especially if you want to get your hands on items that you can’t quite afford yet. Because payments are spread evenly across fortnightly installments, you won’t feel the full financial weight of a purchase in one hit.

While Afterpay is an innovative way to buy things and may be cheaper than your average credit card, it could get addictive for serious shopaholics. A $10 late payment fee here and there may not seem steep, until they start to add up!

Want to find out how Afterpay stacks up to other BNPL options in the market? Have a read of our comprehensive Buy Now Pay Later comparison guide.

This guide was written by Ceyda Erem and Roisin Kelly-Goldsmith.