“Shop now. Pay later. Interest-free.” That is the tagline used in Afterpay’s advertising. It sounds too good to be true. Afterpay has thousands of Australians every day scrambling like racoons to make those (impulsive) purchases they otherwise may not make due to the drawbacks of other payment methods.

For example, with layby, you don’t get your goods immediately. When paying cash upfront, you have to think twice about whether you really need something. With Afterpay, those drawbacks are not present. Hello, retro disco roller skates.

So what’s the catch, and what do consumers and retailers need to know about the risks of Afterpay?

How Afterpay Works

Afterpay is a relatively new interest-free payment provider. It enables consumers to purchase goods, receive their goods instantly, and pay off their purchase in four fortnightly instalments. There are no sign-up fees, and there are no interest charges for using Afterpay.

As soon as a consumer makes a purchase using Afterpay, they have entered into a contract with Afterpay. This contract is separate to their relationship with the retailer from whom they bought their goods. The retailer receives full payment instantly from Afterpay. It is a win for the retailer, who doesn’t have to worry about a consumer defaulting on a payment.

The Fine Print

While Afterpay is a great alternative to paying upfront, layby or using a credit card, consumers should make sure they are aware of the risks of Afterpay. Many of these risks come from Afterpay’s terms and conditions.

Additional Fees

While no interest is charged on the price of the item, Afterpay’s terms and conditions provide that if a consumer fails to pay an instalment (for example, if an automatic debit fails as a result of insufficient funds or an expired credit card), then the consumer will be charged late payment fees.

A failed instalment incurs a $10 fee, and if that payment fails the next week, a further $7 fee is charged.

Further, while the payment terms with Afterpay are 56 days, there is a high chance that consumers are using their credit card with Afterpay. Credit cards usually only have a 51 or 55-day interest-free period. Therefore, consumers can still be charged interest if they use Afterpay.


Consumers have certain rights under the Australian Consumer Law if the goods they purchase do not meet the consumer guarantees. For example, that the goods are not of acceptable quality, or they do not match the description in the advertising. In these circumstances, consumers may ask for a refund.

If a consumer requests a refund within 120 days of purchase and they have used Afterpay to purchase their goods, they will need to return the goods to the retailer. The retailer must then notify Afterpay of the refund and return full payment to Afterpay. Afterpay will then issue a refund to the customer. If a consumer is returning a purchase 120 days or more after the purchase date, then they deal directly with the retailer.

Retailers should be mindful of this when considering maintaining the relationship they have with their customers. Given there is a third party involved, retailers should do everything they can to make their refund process quick and easy.

Afterpay Debts

If a consumer accrues a debt to Afterpay, Afterpay reserves its right to refer the debt to debt collectors.

Dispute resolution

If a consumer has a dispute with Afterpay, their terms provide that they will aim to resolve the complaint within 45 business days. Given this is ‘business days’, that means it could take over two months to (maybe) resolve. The process could, of course, take even longer.

Credit Rating

Although not a traditional form of credit, using Afterpay can still affect your credit rating. This is one of the more serious risks of Afterpay. Afterpay’s terms specify that they reserve the right to conduct a credit history check. If a consumer fails to make repayments, they may be reported to a credit reporting agency such as Veda.

Consumer Protections

Afterpay is not a type of credit contract that is regulated by the National Credit Code (NCC). This is because there is no interest and it is short-term credit provided across less than 62 days. Instead, Afterpay charges retailers who wish to use their service a ‘service fee’.

Therefore, consumers using Afterpay lose certain consumer credit protections. These include the responsible lending provisions of the National Consumer Credit Protection Act 2009 (NCPA), which require credit providers to assess a person’s suitability for receiving credit.

This may not seem like a huge problem due to the fact that the Afterpay limit on linked debit cards is $500 and $1,000 for credit cards. However, a large portion of Afterpay’s revenue is from collecting late payment fees (last reported at 17% of its revenue, around $1.2 million). Therefore, arguably, Afterpay should be subjected to the same regulations as other consumer credit providers. This is especially the case given they are targeting a young demographic that may not have the income to meet repayments. For these consumers, the risks of Afterpay are higher.

If a consumer experiences financial hardship and they owe money to Afterpay, they should contact Afterpay immediately and notify them of their circumstances. This will help ensure that the issue is addressed early, avoid mounting late fees, and the risk of being reported to a credit reporting agency.

Key Takeaways

Afterpay makes it easy for consumers to put small retail purchases on credit. However, there are risks of Afterpay. For consumers, Afterpay will charge late fees for missed payments. They may also refer the account to a debt collector or credit reporting agency. For retailers, Afterpay may complicate the refund process.

If you need advice on how consumer credit laws apply to your retail business, call LegalVision’s consumer lawyers on 1300 544 755 or fill out the form on this page.

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