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How Does Afterpay Work and Why You Need It

As companies and businesses grow and adapt to new technologies and customer needs, new options arise. One option that businesses are adopting is the concept of Afterpay, essentially a payment plan that allows you to afford expenses and purchases without worrying about the actual costs until later. Before you subscribe to Afterpay, here are a few things you need to understand about how it works and why it will be beneficial for customers and businesses alike.

Buy Now And Pay After

Afterpay is the option that customers have where they can choose a plan in order to afford their purchases and pay the balance later. It works similar to a loan in that you have a set amount of time to make your payments, either doing so in installments or paying them off early if you have the option and are willing to do so. It differs from loans in that you do not incur interest rates and simply have to pay back the amount of the items. Similar to loans, you have to be approved for your Afterpay option, and cannot simply borrow without showing you are able to be financially responsible and make your payments.


As mentioned, Afterpay options require the approval of your financial qualifications to determine if you are going to be able to pay back the borrowed money. Your approval is based on having enough money in your accounts, or card provided, the period of time in which you have used Afterpay in the past, the amount you are trying to borrow, and the number of open orders that you have on other items at the time of the application. Because of these factors, the amount you can borrow and defer payments on at any one time will differ. This may not be ideal for some people, but this is the best way to ensure payments are made and that the service is free for the customer.

Fees And Penalties

Unlike loans where the amount that you borrow will have an interest on them that you will need to pay back on top of the initial borrowed amount, there are no interest rates that you need to worry about when considering Afterpay. However, there are penalties for the inability to make your payments in the form of late fees that you will be responsible for. These occur when you cannot meet your payment dates as well as recurring failure to complete your repayments. 

Additionally, if you have outstanding balances and orders that are overdue, you will be unable to make further Afterpay purchases, and need to settle those transactions prior to adding on any new orders. There are no initial fees to use Afterpay for customers. The fees instead are charged to businesses, making the option for customers to defer payments viably.

Why Businesses Should Use It

Since businesses have to pay in order to incorporate this option into their payment methods, you may question why businesses would opt-in for this. Having these options created by the agreements made between Afterpay retailers drives increased transactions, helping businesses gain customers that they would otherwise miss out on if their customers could not afford to make their payments on the spot. Businesses will get the payments immediately, of course at a small fee, while Afterpay companies will incur the debt owed. This means an immediate business which is beneficial for businesses to grow faster.

Why Customers Should Use It

Sometimes, the items you want to purchase are offered in a time-sensitive manner. Certain marketing practices create these timed events and promotions to create a higher demand for products offered under a limited run. The risk of losing out on the opportunity to purchase an item is a great marketing tool to create a certain exclusivity and get consumers to buy sooner than later. 

Additionally, sometimes sales are offered at limited timeframes, and if a customer was to wait until after the sale to make their purchase, would end up paying more. Afterpay services allow you to have enough money to pay for your purchases. This is perfect for those that know they are getting money in the following weeks, but are unable to make the lump sum payment. Additionally, you don’t need to worry about interest rates or having your credit score impacted. 

Afterpay is an option that benefits many people, both businesses and consumers. Businesses see more immediate sales and customers can get the satisfaction of purchasing their goods, items, and services immediately without having to wait, and also not needing to worry about interest. It is important that you understand what you can gain and what is at risk when applying this to any company and using it as a customer as well.