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Zip Pay vs. Afterpay: What you need to know before joining

Zip Pay vs. Afterpay: What you need to know before joining

Buy now, pay later (BNPL) services allow you to purchase something and pay for it in instalments later. You are generally required to pay a small amount at the time of purchase, and the remaining amount is divided into weekly or fortnightly repayments depending on your service provider. For instance, Afterpay lets you pay for your items in four equal fortnightly instalments. On the other hand, Zip Pay lets you choose your repayment schedule, but you need to pay a minimum of $40 per month.

Overall, BNPL services may provide a more manageable way of purchasing big-ticket items than credit cards by offering interest-free repayments. However, BNPL services are not without pitfalls unless you’re aware of what you’re getting into and have a strategy to pay back your purchases on time.

A recent survey by RateCity found that almost one in every three BNPL users landed themselves in financial trouble. More than half the respondents confessed they were likely to overspend or impulse buy using BNPL. Besides the risk of impulse buying, BNPL users with purchases spread across several platforms also risk losing track of their repayments, leading to fines or late payment fees.

It’s worth noting that most BNPL platforms differ in terms of the fees they will charge you, the repayment structure and the maximum amount you’ll be allowed to spend on a purchase. If you’re considering a BNPL service, it’s important to read the terms and conditions properly and set yourself strict spending limits to avoid being hit by unnecessary fees.

This post will acquaint you with two of the more popular BNPL platforms, Afterpay and Zip Pay, and how they differ from each other.

How does Afterpay work?

Afterpay allows you to shop now and pay later up to a maximum limit of $1500. You can use Afterpay for both online and in-store shopping. First-time users need to create an Afterpay account, and download the Afterpay mobile app to set up the Afterpay Card for in-store payments. Once the card is set up, you can use it with Google Pay or Apple Pay to make contactless payments during checkout at stores that accept payments through Afterpay.

When buying with Afterpay, you’ll pay 25 per cent of the amount at the time of purchase. The remainder will be payable in three equal instalments, due every two weeks. You can log in to your Afterpay account at any time to view your repayment schedule. You can always make a payment before the due date, or Afterpay will automatically deduct the money from your debit or credit card on the payment date.

If you miss an instalment, you’ll pay a $10 fee, and if you still cannot make the repayment within a week, an additional $7 fee will be charged. However, for smaller orders under $40, only a $10 late fee may apply. For orders over $40 and up to $272, late fees cannot exceed 25 per cent of the purchase price. For orders over $272, the maximum late fee that may be charged is capped at $68.

So, even though your Afterpay repayments are interest-free, being late on your repayment can see you paying up to 25 per cent extra for your purchase. Additionally, if the payment is charged on your credit card, there’s the likelihood of being hit by late fees twice if you fail to pay your credit card bill by the due date.

With Afterpay, you’ll need approval before every purchase. Generally, you’re allowed a maximum limit of up to $1,500 per purchase if your account is linked to your credit card, and $500, if it’s linked to your debit card. However, you won’t necessarily be allowed to spend up to your maximum account limit with every transaction you make. 

Afterpay only approves one order at a time. If you’re unable to make a payment on the due date, you won’t be allowed to make another purchase on the platform until your payments are up to date. The amount you’re authorised to spend per transaction depends on various factors. Afterpay claims the length of time you’ve been using the service and the number of open orders on the platform impact your spending capacity on Afterpay.

How does Zip Pay work?

You can sign up for Zip Pay online to set up an everyday spending account with a credit limit of up to $250 - $1,000. Once your account is approved, you can use Zip Pay to purchase goods and services up to your credit limit at online and offline stores that accept payments through Zip Pay.

Unlike other buy now, pay later services like Afterpay, Zip Pay lets you decide your repayment schedule and frequency. You can choose between weekly, fortnightly or monthly repayments, but you must make a minimum monthly repayment of $40. The service is interest-free, but you’ll pay a flat fee of $6 if you haven’t repaid the total amount you owe within a month of your purchase.

The difference between Zip Pay and Afterpay

Both Zip Pay and Afterpay are popular buy now, pay later options that let you buy what you need and pay for it later without requiring a credit card. Both services are straightforward to sign up for, and you can view and manage your payments conveniently through a mobile app.

However, Afterpay and Zip Pay are different from each other in terms of the fees you might be required to pay, the overall credit limit and even the eligibility criteria to an extent. For instance, Afterpay requires you to have a valid credit or debit card for signing up, while you can sign up on Zip Pay using your savings account details. 

Afterpay generally requires you to pay 25 per cent of the purchase price at the time of purchase. The remaining amount is payable in three instalments, due every two weeks. Zip Pay, on the other hand, lets you choose your repayment schedule. You may choose to pay weekly, fortnightly or monthly, but a minimum monthly repayment of $40 is mandatory. You’ll also pay a flat fee of $6 on Zip Pay each month unless you pay off your open purchases within a month. Afterpay users don’t pay any account keeping fee, but they’re subject to late fees if they miss a payment. 

While you can apply for a Zip Pay account online, Zip will carry out a background check, including a credit check, before approving you for using the service. However, despite performing a credit check, Zip Pay doesn’t report positive financial behaviour to credit bureaus, and you cannot build your credit using Zip Pay.

On the other hand, Afterpay doesn’t carry out any credit checks before onboarding users. Still, both Afterpay and Zip Pay will report defaults worth $150 or more that are 60 days overdue, adversely impacting your credit history just like credit card defaults.  

Overall, there’s no clear winner in the Zip Pay vs Afterpay debate as both services have their own benefits and pitfalls. If you’re looking for a service that keeps you on a tighter leash, Afterpay might be worth considering due to a fixed repayment schedule. However, if you’re looking for a flexible line of credit, you might prefer Zip Pay as it lets you spend a specified amount using the service and repay it at your own convenience.

Zip’s partnership with Visa means you can use it at all stores that accept Visa. It’s also worth knowing that Afterpay doesn’t offer product quality protection. You need to go to the merchant directly if you find a product bought using Afterpay to be unsatisfactory. On the other hand, Zip Pay has a buyer protection policy in place. It might help you file a claim for inferior goods if you meet the eligibility criteria.

Is it worth using a BNPL service?

If you’re looking for a more manageable way of making a large purchase, there are several buy now, pay later services you might want to compare. However, it’s worth considering whether such services are really interest-free and offer you any real benefits apart from flexible repayments. For instance, Zip Pay levies a monthly fee on your account unless you pay off your open purchases in full every month, which could significantly add to the cost of your purchase in some cases. You’re also likely to pay late fees if you miss any repayment, which could impact your credit score adversely. 

If you’re thinking of buying something with a BNPL service, it might help to review your budget and check whether you’ll be able to meet the payment deadlines on time to avoid any account keeping fees or late payment fines. If you’ve struggled with debt in the past or you’re currently on a tight budget, it may be better to use your savings than to take on additional debt you might struggle with later. If you’re already using a BNPL service like Afterpay or Zip Pay and finding it difficult to meet your repayments, it could help to plug further spending and contact your bank or credit union for assistance under their hardship policy.

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This article was reviewed by Personal Finance Editor Alex Ritchie before it was published as part of RateCity's Fact Check process.

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