Considering Using AfterPay? Watch This First - YouTube

I've seen AfterPay as a payment option on tons of websites, and honestly, I completely

ignored it, because I assumed it was some kind of scam. And then last week, I was chatting

with a friend about how she loves to use AfterPay and feels like it's better than using

credit cards. So I checked out AfterPay, and I followed the money to find out: Is this

a good or a bad deal for consumers? What I found out might surprise you. With AfterPay,

you pay 25% of the purchase price upfront, and then you make payments every two weeks

until your purchase is paid off after six weeks. And there's zero interest charges,

the payments are automatically withdrawn, so you don't have to worry about remembering

to pay them. My friend likes to shop on payday with AfterPay. And then she knows that future

payments will be withdrawn under next three paydays. So basically, it's a free short term

loan. But every time I hear that something is free, it makes me a little suspicious,

and it makes my ears stand up. So I wanted to know: How does AfterPay make money? A lot

of people assume that AfterPay makes most of their money by charging people late fees

when they don't make their payments on time. And honestly, that's what I assumed too. But

that's not actually the case. AfterPay is a publicly-traded company, so their financial

reports are public, and they show that less than 15% of AfterPay's income is from late

fees. If you do miss a payment, there is a late fee every week until you pay it off.

The total late fees are capped at 25% of the purchase. So they don't continue to build

forever, AfterPay also blocks you from making any more purchases if you're behind on payments.

So they really don't snowball like other kinds of fees can. Although AfterPay does make some

money from late fees, the vast majority of their income is from fees that they charge

to the merchants. Merchants pay a fee of around 4% to 6% of the purchase price to offer

AfterPay to their customers. The way it works is when you buy something for $100 with AfterPay,

AfterPay gives the merchant $94 right away. And then AfterPay handles collecting the

full $100 from you over the next six weeks. If you return the item, you'll get the full

amount back and the merchant just loses those fees. Now compare this to the typical credit

card processing fees for merchants, which are only around 1% to 3%. So why are merchants

willing to pay double the processing fees for AfterPay? It's because they're nice, right?

We all know that companies always spend money on us just out of the kindness of their hearts.

Of course not. It's because they sell more merchandise if they have AfterPay. And it's

not just a little bit more, it's a lot more merchandise. If you look at how AfterPay advertises

itself to merchants, AfterPay says its merchants get 20% higher cart conversions and a 17%

increase in average basket size. So that means 20% more people who put things in their cart

actually click to buy it. And people that make purchases have 17% more stuff in their

orders. You can see why it's attractive to merchants and why they're willing to pay AfterPay's

high fees. It's like they're paying $5 To make an extra $20. But what does this mean

for you and me? It means that we're likely to buy more if we use AfterPay. We all want

to believe that we don't fall for the psychological tricks. But the numbers show it's true. It's

just so much less painful to see 4 payments of $25 instead of $100 today. Of course,

being aware of the psychological tricks is the first step to overcoming them. So now

that we understand how AfterPay works, should we use it? Well, some people like to use AfterPay

because they feel like it's a better alternative to credit cards. Well is it? AfterPay is a

type of credit. But one thing that makes it different from a credit card is that it doesn't

affect your credit score. Or maybe I should say that it's credit in the trying to strap

your two year old into a car seat kind of way, meaning it certainly won't help you and

there's a distinct possibility you might get kicked in the face or your credit score might

AfterPay says they don't report on-time payments or late payments to your credit bureaus. But

they do reserve the right to report things, which means they're likely to report accounts

that are defaulted on, which would definitely hurt your credit score. Another difference

is that with AfterPay, you don't know ahead of time if your purchase will be approved

or not, unlike a credit card with a defined credit limit. And they do deny a lot of purchases.

50% of initial purchases and 30% of subsequent purchases are declined. AfterPay also doesn't

give any rewards or cashback, it isn't accepted everywhere, and it doesn't have any consumer

protections like a credit card does. The only advantage of AfterPay over a credit card

is that you might be able to qualify with low or no credit, and a lot of people do enjoy

the convenience of it. Otherwise, credit cards seem to be a better choice.

So should you use AfterPay? Well, it's definitely not a scam. It's a short term loan that the

merchant pays the fees on and the merchants are willing to pay for it because it's very

likely to get to the shop more often and buy more stuff when you do shop. Personally I

think credit cards are a better deal compared to AfterPay. But if you disagree with me,

change my mind in the comments. I'd love to hear if you think AfterPay is better than

credit cards. Next up, check out my video where

I went on the hunt for the best cashback

credit cards with the least amount of hassle for people who are too busy to play games

with credit card points.