Afterpay vs credit card. Which is better for your financial life? We take a look at the difference between a credit card and Afterpay, the pros and cons of each, and how to choose which one to use.

How is Afterpay different to a credit card?

Both Afterpay and a credit card offer you a line of credit. You borrow money to make an immediate purchase on the agreement to repay the debt later.  

A credit card is issued by a financial institution, like a bank or credit union, who lends you the money. 

Afterpay, on the other hand, is a ‘buy now, pay later’ platform. Afterpay pays the retailer on your behalf and you pay back Afterpay for the amount in four instalments - of equal value -  due each fortnight. 

Afterpay’s FY20 results show an average of 17,300 new customers joined the Afterpay platform each day during the 2020 financial year. This increased to 20,500 new customers per day during the fourth quarter. 

But is Afterpay really a better alternative to a credit card?

Afterpay vs credit card: How repayments work

Your credit card bill is due once a month. You can make payments at any stage of any amount  before the due date. 

Fail to pay the full amount by the due date and you’ll be charged interest. If you don’t make at least the minimum repayment, you’ll incur a late fee too. 

The payment terms for Afterpay are more frequent and pre-scheduled. You must pay a total of 4 payments, made in full, each fortnight. 

For example, if you make a $500 purchase you need to make 4 x repayments of $125 with each instalment due fortnightly.

Instalments are automatically taken from your debit or credit card on your payment due dates. Or, you can make a payment prior to the due date. 

Do you pay interest with Afterpay?

No, repayments are interest free but you’ll still be hit with fees for late payments. 

As at November 2020, Afterpay’s late fee is $10 with a further $7 late fee added seven days after the payment is due if it remains unpaid. 

According to Afterpay’s terms of service, for each order below $40, a maximum of one $10 late fee may be applied per order. For each order of $40 or above, the total of the late fees that may be applied are capped at 25% of the original order value or $68, whichever is less. 

If you have any overdue Afterpay payments new purchases will not be available to you.

Afterpay vs credit card: Credit checks and account set up

When you apply for a credit card, the bank runs a check to see your credit history and assess if you qualify for a card and the limit. 

This check offers you some level of protection so (ideally) you won’t be approved for more credit than you can comfortably handle.

There's no credit check before you apply for Afterpay. This might sound good but it can leave you vulnerable to borrowing more than you can afford. 

Afterpay can also report defaults on your account to credit rating bureaus which will negatively impact your credit score. 


Pros and cons of Afterpay vs credit card

Here are some of the pros and cons of using Afterpay

No interest accrued if you make the full fortnightly payment.You can’t choose your terms for.
Fast, easy approval.Encourages impulse and over spending.
Done-for-you payment plan. Can be beneficial if you struggle with the discipline to create and stick with a repayment schedule.You don’t have access to reward points or other benefits.
Outstanding Afterpay balance may affect home loan eligibility.

Here are some of the pros and cons of using credit card

No interest accrued if you pay off your balance every month.Interest, annual fees (for some cards) and late payment fees.
Earn rewards and access other benefits - including insurance policies.Easy to overspend on cards with high limits.
Easy to use for recurring subscriptions.Making only minimum payments means even modest purchases can take years to repay.
Can be used overseas and currency conversion.Risk of credit card fraud
A credit card may help build your credit profile.
Credit card payment methods are more widely accepted than Afterpay.

Should I use Afterpay or a credit card?

When comparing Afterpay vs credit card, Afterpay positions its major selling point as ‘no interest’ credit. 

But ultimately, if you pay the balance of either a credit card or Afterpay account off in time neither charge interest. In this scenario, using a credit card can offer more benefits in terms of reward programs, complimentary insurance, etc.

Now, the banks have competitive credit card with interest free offers or simply no interest cards

When Afterpay may be the better choice

  • If a clear, regular payment plan helps you stay on track with repayments.
  • You need quick access to credit. The danger here, of course, is impulse spending.
  • If owning a credit card with a large limit would lead to overspending.

When a credit card may be the better option

  • To take advantage of rewards programs, free insurance or other perks offered.
  • You have no issue paying your balance in full each month to avoid interest.
  • Impulse spending doesn’t tempt you and you handle credit responsibly.
  • You want to build your credit score.
  • You use your credit card to pay for services / products where Afterpay isn’t an option.

Whether you choose Afterpay or credit card, use credit wisely. Always know how much you owe, don’t spend what you can’t comfortably repay and set reminders for your bill payments.