What is PayPal Credit and how does it work?

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.

Unlike PayPal’s credit cards, 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 Credit gives users up to six months to pay off the balance interest-free, says Susan Schmidt, vice president of consumer credit for PayPal Credit. 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.

If you have multiple purchases, how does PayPal Credit decide how to allocate a payment?

With so many different types of purchases you can make using PayPal Credit – each with varying interest calculations and payment windows – its method for calculating the order of purchases (and fees) can get a little complicated.

Normally, the minimum amount due will first pay planned payments on Easy Payment purchases, followed by interest. Any amount above the minimum amount due will pay down the balance with the highest interest rate. If you have a purchase with a deferred interest period about to expire, your payment may be allocated to that balance after any scheduled Easy Payment purchases, according to PayPal Credit’s terms and conditions.

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 Credit. 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 Credit.

What are the costs and fees associated with PayPal Credit?

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.