Home > Buy Now Pay Later > Afterpay vs. Small Loan: What Are The Pros And Cons?

Afterpay vs. Small Loan: What Are The Pros And Cons?

Rachel Horan

Rachel Horan

June 24, 20216 minute read
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If you’re tossing up between using Afterpay or a small loan to fund a purchase, there are some things that you might want to consider before deciding which option is right for you.

Buy now pay later (BNPL) platforms like Afterpay and Zip function like the name suggests: you buy something now and pay it off later. On the other hand, small loans operate so that you are provided with funds to make a purchase, and you repay the money borrowed directly to the financier.

Both finance options serve the same core purpose: to assist people in making purchases they otherwise couldn’t make. But what are the pros and cons of each?

What is Afterpay?

In a nutshell, Afterpay is a BNPL platform that allows users to buy a good or service straight away and then pay for it in four fortnightly instalments. Currently, the service has over three million active users across Australia and New Zealand and more than eight million worldwide.

If you were to use Afterpay, you would make your desired purchase with a retailer and Afterpay covers the cost. At this point, you make the four repayments directly to Afterpay in equal instalments, without extra fees or charges (that is, if your payments are on time).

Afterpay is available at roughly 10,000 individual shops across Australia and New Zealand. It can be most comparable to a credit card, but instead of paying off the money used, you’re paying off the product and/or service purchased.

What is a small loan?

Unlike Afterpay, a small loan allows you to borrow money to fund a purchase. Instead of paying off a product or service, you are repaying the money borrowed from the financier to make a purchase.

There are thousands of lenders across Australia, including banks, credit unions, and online lenders. Typically, online lenders provide the fastest loans, and banks and credit unions provide the most competitive interest rates.

If you were to use a small loan, you would apply through your desired lender, including what the money will be used for and how much you need, and get an outcome quickly (depending on where you apply). Once you have received your money, you use this for its required reason and pay back the lender for the money borrowed.

What are the pros and cons?

Like most things, there are pros and cons to both Afterpay and a small loan. In order to understand when you might like to use each financial assistance option, let’s discuss in detail below:

Pros of Afterpay

There are a few key pros of using Afterpay, most notably, that there are no initial fees or interest charges. Similar to most credit cards, if you pay off the ‘amount owing’, you will not be out-of-pocket in fees and charges.

In addition, Afterpay is super easy to use and highly accessible. All you need to do is sign up, create a barcode, and make your purchase.

Lastly, another notable advantage is that, in most cases, using Afterpay won’t affect your credit score. This is because Afterpay typically doesn’t conduct a credit check on users (though, they reserve the right to do so).

A brief summary of the pros of Afterpay:

  • No interest charges or other fees (if paid on time).
  • Super easy to use and easily accessible.
  • Unlikely to affect your credit score.

Cons of Afterpay

The most notable con of Afterpay is the cumulative impact of using the service. Effie Zahos, money expert for Canstar, says that shoppers can overlook the impact of using services like Afterpay in the long run.

A recent study revealed that customers that had a $1,000 purchasing limit spend up to that limit every two months. Meaning, they have regular repayments of $250 each fortnight. In one year, this equals to a total of $6,500 spent on Afterpay payments.


The Australian Competition and Consumer Commission found that 55% of consumers stated that they spend more than they did previous to using BNPL services like Afterpay.

Another disadvantage of Afterpay is that they do charge late fees if payments aren’t made on time. An initial fee of $10 will apply, with late fees being capped at 25% of the original order value (or $68).

Additionally, you only have four instalments to pay back the money borrowed. Depending on how much you borrow, this can make budgeting difficult.

Lastly, you are limited in how much you can spend using Afterpay. Typically, you can only spend up to $1,500 per transaction, and the outstanding account limit is $2,000.

A brief summary of the cons of Afterpay:

  • Cumulative impact: likely to spend more on items you don’t really need
  • Late fees
  • Short repayment period
  • Limited borrowing amount

Pros of small loans

Small loans can be great to avoid overspending. You are provided with a specific amount of money, no more and no less, and you are given exact repayment amounts and a schedule.

Additionally, most small personal loans are flexible in your repayment period. You can usually pick over how long you wish to pay off your loan. At Jacaranda Finance, you are given up to 36 months to pay off a loan (depending on how much you borrow).

Afterpay is only available with selected retailers, meaning that if you need to purchase an item from somewhere that doesn’t use Afterpay, you won’t be able to use the service. If you are approved for your loan amount, you can use this money to purchase whatever you want, from any retailer you want. This is because they have nothing to do with your personal loan repayments, and this is your responsibility to manage.

Lastly, you can borrow a larger amount with a small loan. Jacaranda Finance provides personal loans from $1,000 to $15,000, whereas Afterpay caps at $1,500.

A brief summary of the pros of small loans:

  • Avoid overspending.
  • Flexible repayments.
  • You can use it anywhere.
  • Larger borrowing capacity.

Cons of small loans

Unlike Afterpay, most small loans come with additional fees and charges. In most instances, you can expect to pay interest charges, monthly fees, and establishment fees (depending on the financier).

The other notable con of small loans, when compared to Afterpay, is that it is likely to affect your credit score. However, this doesn’t necessarily mean that it will have a negative impact. Most lenders will conduct a credit check when you apply for a personal loan, which will appear on your credit report as a hard inquiry. In addition, if you miss repayments, default on the loan, or have a serious credit infringement as a result of taking out a personal loan, this can negatively influence your credit score. On the other hand, if the lender uses Comprehensive Credit Reporting (CCR) (i.e. making payments on time and in full), this could improve your credit score.

A brief summary of the cons of small loans:

  • More applicable fees and charges
  • Can affect your credit score (positively or negatively)

A final comparison

At the end of the day, Afterpay and small loans can both be great when used properly and responsibly. Similarly, they can sometimes be harmful if mismanaged. It comes down to how the product is used and whether it is right for your individual situation.

If you want to learn more about small loans compared with credit cards, you can read our recent article. To learn more about credit scores, check out our articles about credit scores.

Copyright © www.jacarandafinance.com.au Jacaranda Finance Pty Ltd ® ABN 53 162 078 195 Australian Credit Licence 456 404, Pawnbroking License Number 4221738. The information on this web-page is general information and does not take into account your objectives, financial situation or needs. Information provided on this website is general in nature and does not constitute financial advice.

Rachel Horan
Rachel Horan

Written by Rachel Horan

Rachel Horan is a Content Writer for Jacaranda Finance. Rachel has previously produced content for Brisbane City Council, Black & White Cabs, and Clubs Queensland. She has a Bachelor of Mass Communication with Distinction from the Queensland University of Technology.

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