Ask Finder: Should I use Afterpay or my credit card’s interest-free days?
What's the difference between the interest-free period you get with Afterpay and the interest-free days on a credit card?
I need to buy a new bed and want to pay it off over a few weeks. My budget's about $2,000 and I want to avoid paying interest, so I'm wondering if it would be better to use Afterpay or my credit card, which offers up to 55 days interest-free. Can you explain the difference?
Desperately seeking sleep
While both Afterpay and credit cards can offer you a decent amount of time to pay off your bed interest-free, the terms and conditions for each option vary a lot. So, here's a breakdown of both of them based on the details you've shared.
With Afterpay, you would pay for your bed through four equal instalments, with payments deducted from your chosen account every two weeks. For new customers as well as for in-store purchases and purchases over $500, you will also need to pay 25% upfront.
So if your bed cost $2,000, you would need to pay $500 at the time of your purchase. You could them pay off the remaining $1,500 through fortnightly instalments of $375 each.
Afterpay offers automatic payments from a debit card or credit card. You also have the option of changing the date for payments or settling the balance early through your Afterpay account.
As long as your payments are not late, you won't pay any fees. If you miss a payment, you have until 11:00pm the next day to settle it before a late fee is charged. This is $10 for the first late fee and a further $7 if you don't make the payment within 7 days.
So, assuming you make all your payments on time, using Afterpay would give you a maximum of 8 weeks – or 56 days – to pay off your bed.
Credit card interest-free days
Most credit cards only offer interest-free days if you pay your statement's closing account balance in full by the due date.
If you meet this requirement, then the interest-free period begins on the first day of your statement period, which is the day after your last statement was issued. You then have a decreasing number of interest-free days throughout that statement period, ending with the payment due date for that statement.
This means you would need to buy your new bed on the first day of your statement period to take advantage of the full 55-day interest-free period offered on your card.
While this is one less day than the maximum period you'd get through Afterpay, you would not need to pay 25% upfront if you used your credit card. Instead, the entire $2,000 purchase would go on your credit card.
Unlike Afterpay, you would then have to choose how you managed your repayments.
For example, if you like the structure of equal-value payments, you could repay $285.72 each week for 7 weeks to clear this debt without interest charges (based on the maximum 55 days interest-free period).
Alternatively, you could vary your repayment amounts as needed. That might mean, for instance, you pay $200 one week, $300 the next and so on. Or, if you get paid fortnightly, you could make two payments of $600 and a third payment of $800 – as long as you pay the total owed by the due date on your statement.
Other details to think about
Do you have a rewards credit card?
If your credit card earns points per $1 spent, using it to pay for your bed could get you closer to redeeming a flight, gift card or other reward.
Do you need more than 55 or 56 days to pay off your bed?
If you don't meet the four fortnightly payments on Afterpay, you will be charged late payment fees. These are capped at $68. If you don't pay off the entire balance on your credit card within the interest-free period (but do pay at least the minimum on each statement), interest charges will apply until you pay off the entire account balance. In some cases, the maximum Afterpay fees could be worth less than your credit card interest charges. As an example, if it took you 4 months to pay $2,000 off a credit card with an 18% p.a. interest rate, you'd be charged $75.56 in interest. That's $7.56 more than Afterpay's maximum late payment fees. So, in this scenario, you could potentially save money by using Afterpay if it took you more than four months to pay off your bed. Having said that, it's likely you'd also get a lot of messages from Afterpay during that time – and it could affect your ability to use it for new purchases in the future.
If you have a rewards or frequent flyer credit card, using it to buy your bed could give you extra value through rewards while also giving you up to 55 days interest-free (when you meet the requirements).
If you want the certainty of knowing how much you'll be charged beyond 55 or 56 days, then Afterpay's late payment cap of $68 gives you more security than a credit card's interest rate charges (which compound over time).
So thinking about your circumstances and what features are the most important to you will help you choose between these options.
Ask Finder is a regular column where Finder's expert writers answer your questions. All rates and fees are correct at time of publication and we only give general advice.
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