PayPal Credit is a quick way to shop online, wherever PayPal is approved. With special financing options and interest-free periods with certain vendors, it could help you fund your next big purchase.
When most people think of PayPal, they don’t think of credit. But the company isn’t just a platform to send people money and shop online.
An arm of the payment service also offers credit cards and credit lines.
PayPal credit cards work like any other card. But the company also offers PayPal Credits, which functions a little differently. Here’s how it works.
What is PayPal Credit?
PayPal Credit is an unsecured line of credit that you apply for and can use online anywhere PayPal is accepted.
Your credit line is linked to your PayPal account.
You can set it as your default payment method, just like you would a debit or credit card.
PayPal Credit doesn’t offer rewards. But it does offer some special payment deals, like longer interest-free terms.
For purchases of $99 or more, PayPal Credits gives users up to six months to pay off the balance interest-free, says Susan Schmidt, vice president of consumer credit for PayPal Credits.
Some retailers also offer special deals extending the interest-free period.
If you don’t pay it off within the required period, you’ll owe interest on the entire repayment period.
So it can be smart to make a repayment plan that leaves you with at least a month to spare, says Bruce McClary, vice president of communications for the National Foundation for Credit Counseling.
For purchases of $30 or more, some merchants allow you to split that into three monthly payments and no interest charges.
With this feature, there’s also no retroactive interest, Schmidt says.
It’s possible to use PayPal Credit to send money to friends and family, but it doesn’t come cheap.
Just like you would with a debit or credit card, you’ll have a one-time transfer fee of 2.9% of the total amount sent, plus a 30-cent flat fee.
You will also begin owing interest on this payment immediately because PayPal treats it like a cash advance.
Where do You Apply for PayPal Credit?
You can apply online through PayPal’s website or through online stores that accept PayPal.
When you select PayPal as your method of payment, it will give you the option to apply for PayPal Credits.
Once you apply, the company will check your credit history, and many customers get an “answer back in less than a minute,” says Schmidt.
Existing “customers may request a credit line increase through the PayPal app, website or by calling customer service,” according to Julia Bass, spokeswoman for PayPal Credits.
How to Apply for PayPal Credit
- Go online to PayPal.com, look for “PayPal Credit,” and click the button to apply.
- You will have to enter your date of birth and the last four digits of your Social Security number.
- You’ll get an instant answer.
The lender will pull the applicant’s credit report and check the consumer’s credit score, says Hood.
The company also uses the customer’s information available on their PayPal account to verify identity and vet them for creditworthiness.
Like most lenders, the company also checks credit through a “hard inquiry,” which can shave a few points off your credit score.
If you’re approved, you’ll get a credit line of at least $250.
Costs and Fees
As of March 2020, the variable APR is 25.49%, according to Tom Hunter, a PayPal spokesman. This is a typical APR for someone who is new to credit, says McClary.
Currently, the average card APR for consumers with bad credit is 24.62%, while the average rewards card APR is 16.12%.
If you have an established history and a score above 650 – and especially if your score is in the high 700s or above – you’ll likely snag lower rates and better perks somewhere else, McClary adds.
PayPal Credit charges either $28 or $39 for late fees, depending on your payment history – as long as that late fee doesn’t exceed the balance owed.
If the amount owed is $28 or less, the late fee won’t exceed $5.
Note: If you have an established history and a score above 650 – and especially if your score is in the high 700s or above – you’ll likely snag lower rates and better perks somewhere else.
PayPal sends users an email each time the credit line is used, containing the purchase total and merchant, just as it does with other methods of payment.
You want to pay attention to those emails, says Eva Velasquez, president, and CEO of Identity Theft Resource Center.
If you receive one for a purchase you didn’t make, notify the company immediately – no matter how small the transaction, she urges.
Criminals might make small fraudulent purchases to see if an account is active.
But those little changes can also serve as an early warning system for consumers – as long as you’re seeing the notifications, Velasquez notes.
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