Last summer in 2020, I needed to buy a washing machine urgently as my old one broke down suddenly. To rescue me, the retail salesman offered me the Afterpay service. Due to COVID situation, I wanted to keep more cash in my bank account rather than spending it. I took the chance to use Afterpay service. After paying it off in four installments, I realized I nearly escaped paying more for my washing machine.
From my experience, I will explain, is it really worth it?
I was also wondering how does Afterpay make money. Afterpay is nothing but ‘buy now pay later’ service. Whatever item you want to buy, you can pay it off in four equal installments without paying interests. However, Afterpay charges fees to retailers. Majority of Afterpay’s earnings come from Merchant Fees, it is $0.30 fixed transaction fees. They also receive commission sales 3-7%. Late fees also contribute to their earnings. They earn $7-$10, a maximum of $68 or 25% of total purchase amount as late fees.
To start with, there is a part of your finances that is affected by the Afterpay service. If not, then, why would you be here? You must have first, reckoned that there is something here (in this article) that will help you out. Well, there are several things here, that would help you deal with whatever financial issues Afterpay might have caused you. You know what they say about knowledge being power. So, follow through!
First off, consider this narrative:
You are a busy professional or maybe just an everyday person. You have been finding it difficult to control how much you spend as it has affected your financial life quite badly. Then, boom! There comes a scheme designed to make it worse in the guise of helping you.
Sequel to this, you recently found a couple of fashion items in an online store that you would like to get. However, you can’t get it because you are unable to pay for it all at once considering your financial state. Then, boom again! Afterpay (the scheme designed to “help” you solve that) comes to “the rescue.”
We can deduce from this narrative that there is a new addition to the world of personal finance. This new addition in some kind of way must have affected how you lead your financial life. We are certain that there is a part of it that affects you.
You are either that everyday person who is struggling with excessive spending, or you just want to know about Afterpay. Either way, this article is for you. Because, here, we will provide answers to the following questions you might want to ask:
- What is Afterpay?
- How does Afterpay work?
- Which set of people are mostly affected by Afterpay services?
- Is Afterpay the best for your finances?
Are there alternatives to Afterpay? If yes, then what are these alternatives?
What is Afterpay? You must have noticed the rapidly growing trend amongst mostly millennials recently. Other age groups are affected as well, but not as badly as millennials are. Currently, the spending pattern of most millennials has been altered greatly thanks to the “Shop Now, Pay Later” payment plan.
What exactly is this payment plan? Keep reading. You will discover that soon.
All the trends you have seen lately with online installments and retails all began with one payment service. This payment service is Afterpay!
Afterpay offers a buy now, pay later instant lending service. They split up your entire purchase payment into four. And instead of it being a one-time payment, Afterpay creates a four biweekly payment arrangement. So, if you want to buy an item or make an order from a retailer that uses Afterpay, you can get the item by making a 25% first deposit. Easy and nice, isn’t it? Actually, it is far from that.
Check around and you will discover a new trend with most retailers and advertisers. They now have their products or that of the brands they advertise displaying an affiliation to the Afterpay payment service. Check out various social media platforms, you will see something like this: “Swipe up to cop this pair of sneakers for four interest-free installments of $22, thanks to Afterpay!”
Brands like Free People, DSW, Urban Outfitters, Forever 21, Anthropologie, and several other retailers have now incorporated Afterpay. Seems like we now have a handful of enticing and seemingly “favorable” baits (offers) to battle, whenever we shop online.
What you will see on their platforms is a list of all their products with their full prices. What follows, however, is a four-payment option icon right underneath. That right there is the Afterpay option.
Afterpay’s Journey into The U.S
The whole journey took off in Australia in 2015. Shortly afterward, Afterpay found its way into the U.S. in 2018. In essence, Afterpay has been here for four years and it has surely revolutionized millennials’ financial lifestyle in no time.
We have enough facts to prove this assertion. Check them out:
- Afterpay is presently valued to be worth well above $1.5 billion. That was quick!
- Interestingly, Forbes has recently declared that Afterpay has made its co-founder and CEO, Nick Molnar incredibly rich. In clear terms, the payment service has increased his net worth to approximately $200 million. That is quite some return Molnar has gotten in hardly over 5 years.
When asked about the Afterpay service lately, Nick Molnar enthusiastically gave this reply: “Afterpay is a service for millennials that can help them spend responsibly and also help retailers sell more stuff.”
This statement to a large extent is different from what the reality is. You may want to ask what then is the reality. The reality is that the phrase “spend responsibly” as he used it here, has never been used more ironically. In its actual sense, the only “help” you can get as a millennial from Afterpay is getting neck-deep in a lifestyle of debt you can’t keep up with. Certainly not the kind of “help” you would desire.
We have already explained a bit about how this payment service works. But there is more to this than just splitting up your payments and spacing them with two weeks in between each payment.
- Afterpay Four Bi-weekly Payment Structure Encourages You To Spend More
Afterpay really works as a devious trade tool. As a customer, you will see the four biweekly payments of $22 as a lower amount of money to part with than $88. When in reality, you will buy more stuff and buy more often than you would normally. That means you are spending more money! As simple as that!
According to Molnar, most retailers prefer the Afterpay payment service because they notice a boost of 20 to 30 percent in their sales. What that implies is that you as their customer end up spending more than what you would spend normally. Precisely, you spend 20 to 30 percent more as you are not spending directly from your bank account. A recent study further proves that people end up spending 83% more when they are not paying with their cash but with credit. This is one sad statistic!
Judging by that we can clearly see the light. The latter part of the statement Molnar made would pass as the actual reason for Afterpay’s creation and its achievements so far. “help retailers sell more stuff.” Well, we might have not said this boldly if he has not further proven it.
- Afterpay’s Additional Interest On Late Payments Is More Baggage
Now to another part of this service most people do not pay enough attention to. The additional interest on late payments! In the case where you do not make payments as at when due, an extra $8 is added to your debt. If after another week you still do not pay, that is another $8 on whatever amount you owe. This will continue if you fail to pay. It only stops when you pay up the balance or the additional amount reaches 25% of the total loan amount.
Hold on! Do not be quick to say, “I will have no issue with this late fee. All I have to do is to pay on time. Easy Peasy!” Consider this data. According to several studies on personal finances and human social life, we might have disturbing news. A good number of people, (we mean, industrious people), find it difficult to make payments at the right time. In clear terms, one out of every three Americans has defaulted on scheduled debt repayments.
It doesn’t matter if you are confident in your ability to keep your head level enough to control your expenses. You still have a fair chance of getting caught up with these late charges. How much more if you are an over-spender? There is always that inherent chance to have your debts accumulate. At the end of the day, you are not just losing out on your income. Your joy goes with it as well.
We have been there and if for anything, at least, we are certain of one fact. If you (as a millennial) are going to understand how to treat money responsibly, what you need principally is CONTENTMENT! The last thing you need is a service that makes you buy and promise to pay back in the future. That certainly does not teach you how to spend your money wisely.
- Why Afterpay Is Not the Best Service For Your Personal Finances?
It is not a new development to have a new payment plan come around. We have had several of them present for a long time already. But mostly, these plans were for larger items. You would find plans for merchandise like a car, a set of furniture, or any other thing of that sort. No one had ever thought there would be one for clothing items. Thinking about it now would even unsettle you slightly. We know how it feels. Sadly, millennials still feel placing a clothing item on some payment plan is better than using a credit card. Tragic and disappointing, to say the least.
A survey by Bankrate makes us understand that a meager 1/3 fraction of millennials (below 30) own a credit card. This is relieving when you compare it with the 50% of older age groups. You will understand why this is so when you consider the student loans and other debts millennials deal with. Therefore, we can safely state that this group of individuals has understood how much stress debt causes. It is then amazing that they would still find this kind of payment plan graceful.
How then does this payment plan affect your financial life as a millennial?
1. Afterpay Makes It Impossible For You To Avoid Stress
Obviously, it is not about having an intense dislike for debts from credit cards, it is more about how seriously they don’t want to be in debt. Debts like personal loans, automobile loans, and installments plans like Afterpay are what you should dread.
In the beginning, it would appear as though this is a good inclusion to your financial life. But, truthfully, if for any reason you refuse to get a credit card but Afterpay sits well with you, there is basically no difference. You are still incurring debts. Just that, you are now doing so in a rather subtle way. If you owe anybody, any amount, for any reason, what you have on you is a debt!
2. You Will Continue To Live From Paycheck To Paycheck
It is a known fact that we all see debt as a regular thing in our society. However, this doesn’t rid it of the stress it can bring on you. It is just like you have chains around you. Not you literally, but your finances. Actually, it is on you at the end of the day.
You are not free financially, just as you’re not free to make certain choices for yourself. Once it is another payday, you have debts waiting all ready to take up all you have just earned. That is certainly not the best life to live. You are trailing your past steps. No future in sight!
learn more about how to stop living paycheck to paycheck.
What Are the Alternatives To Afterpay?
At this point, you must have realized the whole essence of this article. Afterpay is not the best option for you to buy anything at all; let alone clothing items. Yet, if you love to shop and spend money, you can still do all these. The truth is that you do not need Afterpay to do that. No one does!
There are two ways to get as many items as you want without losing track of your finances. They include:
Saving
Start by ensuring you have a part of your income that is going into a certain “piggyspace” Aside from this, you can similarly save some of your income through budgeting. In fact, you will save a lot. Please check out this article, where numerous ways to save was discussed.
Budgeting
Create a set-out plan for how your funds will be spent. Know exactly what you want to buy and fix a certain amount for each item. Lastly, when you buy an item, pay in cash.
By doing these, you are not piling up payments and waiting for that paycheck to clear them up. Then, you go broke again. With these, you avoid spending more than you have. Living this kind of lifestyle helps build your personal finances. At the end of the day, you have that much-needed financial stability!
Closing Thoughts
The Afterpay payment plan is simply a new means to enrich retailers at the expense of your own financial life. If you doubt this statement at any point in time, just do this. Check out any of the stores these retailers use. Compare them with your own apartment. Which is bigger and lovelier? There is your proof.
Finally, have you thought about the possibility of Nick Molnar using Afterpay at all? Well, there is virtually zero chance that he would do so! Come on, he is worth $200 million. Why on earth would he need to incur debts to get a pair of sneakers?
You do not have to be that rich to also avoid such a debt. If you cannot pay for that item once, then leave it till you can. You should be paying for it not to Afterpay for it!
