What Is PayPal Credit & How Does It Work?
It’s a real challenge to keep up with all the different payment services PayPal offers because there are so dang many, and new ones seem to come out all the time. PayPal services also frequently change names as they are rebranded or acquired from other companies.
One PayPal service you might be curious about, as it has generated some buzz lately, is PayPal Credit (formerly Bill Me Later). Read on to learn about this PayPal payment option.
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How Does PayPal Credit Work?
PayPal Credit is a line of credit issued by Synchrony Bank. Approved PayPal users can use this virtual line of credit which functions similarly to a credit card, letting you pay for online purchases in installments, rather than upfront in-full.
Approved PayPal users can use PayPal Credit as a payment option whenever they check out using PayPal, either from a website or at a brick-and-mortar store that accepts PayPal.
Note that PayPal Credit is not the same thing as a PayPal debit or credit card.
How To Apply & Use PayPal Credit
PayPal Credit is easy to apply for and start using. But it’s important that you understand a little bit about how PayPal Credit works before you start using this service.
Applying For PayPal Credit
Any PayPal user can apply for PayPal Credit. If you don’t have a PayPal account already, you will be prompted to create one when applying for PayPal Credit. The application is quick and simple: you only have to supply your date of birth, your income after taxes, and the last 4 digits of your Social Security number. Be warned that PayPal will do a hard credit pull, which might ding your credit score a few points. Typically within seconds, you’ll have your approval answer.
PayPal doesn’t have any clearly stated applicant criteria, but applicants with poor credit or limited credit history may be declined.
Note that PayPal Credit is the new name for Bill Me Later, which has been around for more than 10 years. If you already had a Bill Me Later account, you now have a PayPal Credit account.
Using PayPal Credit
Once you have your PayPal Credit account set up, you can use PayPal Credit in conjunction with your PayPal account anywhere PayPal is accepted. You simply need to set up PayPal Credit as your default “preferred” payment option for PayPal, or select PayPal Credit as your payment option when checking out. Some merchants may also prompt you to pay using PayPal Credit instead of your regular PayPal preferred payment option (which is usually linked to a credit or debit card, or your bank account).
You can manage your PayPal Credit settings using a web browser or with the PayPal app. You can also make payments on your balance and see your current credit limit — just like you would for any credit card app you might already use.
As part of its “Cash Advance” feature, it’s possible to use PayPal Credit to send money to someone online using the Send Money tab, the same way you can with any other PayPal Wallet option. You cannot use this feature to send a cash advance to yourself.
PayPal Credit Terms & Conditions
PayPal Credit requires monthly payments on your balance. You can make the minimum payment at the end of the month, make payments in any other amount whenever you like, or pay your balance in full at any time, similar to a credit card. For new accounts, PayPal Credit has a variable APR of 25.49% on standard purchases and cash advances (at the time of publishing). Being variable, the APR will fluctuate with the Prime interest rate.
PayPal Credit is currently promoting a 6-months special financing offer, in which you won’t have to pay any interest on purchases of $99 or higher for 6 months. You will be charged interest if you don’t pay the balance in full within 6 months.
To send money (Cash Advance) with PayPal Credit, PayPal will charge a flat fee of 2.9% + $.30 US dollars per transaction. This is the same fee you pay when you use a debit or credit card to send money through PayPal.
PayPal Credit Pros & Cons
Pros Of PayPal Credit
- Fast & Convenient: You can use PayPal Credit to make a purchase as soon as you’re approved (usually within seconds). In comparison, you might have to wait a week or longer for a credit card you’ve applied for to come in the mail.
- Use Anywhere PayPal Is Accepted: This includes thousands of websites and a growing number of brick-and-mortar stores as well.
- Will Help You Build Credit: Prior to October 2019, PayPal Credit was considered a “hidden tradeline” because it didn’t report your activity to the credit bureaus. PayPal then reversed this policy, and PayPal Credit now reports your payment activity to the big three credit bureaus (Equifax, Experian, and TransUnion).
- PayPal Purchase Protection: If your online purchase doesn’t match the description or doesn’t arrive, PayPal will refund the full purchase price plus original shipping costs.
Cons Of PayPal Credit
- Low Credit Limit: Unlike a traditional line of credit, PayPal Credit limits are comparable to or even lower than most credit card limits, with the majority of users’ limits ranging from just $250 to a few thousand dollars.
- Hard Credit Inquiry: The hard credit pull during the application process will likely ding your score several points.
- High APR: You can probably get a better APR with a credit card, especially if you have good credit.
- Risk Of Overspending: You may be tempted to spend more with PayPal Credit than you would with regular PayPal.*
*Note that this pro/con list is from a PayPal Credit user’s point of view. From a merchant’s point of view, there are no major downsides to PayPal Credit, other than the downsides of using PayPal in general (namely, the high transaction fees). However, a potential upside of advertising promotional financing with PayPal Credit as a merchant that already offers PayPal as a checkout option is that PayPal users typically spend more and make larger purchases with PayPal Credit.
Can Businesses Use PayPal Credit?
Yes, your customers can pay using PayPal Credit as long as your business accepts PayPal payments. But when it comes to using PayPal Credit for business purchases, there are better options available.
Businesses that accept PayPal at checkout can offer customers the option to pay with PayPal Credit, either online or in-store. If you accept PayPal as a payment form, PayPal Credit is already available to customers who check out with PayPal at no additional cost to your business.
When a customer makes a purchase using PayPal Credit, PayPal deposits the full amount of the purchase into your account just as with any other PayPal transaction, so there is no added risk to you as a PayPal merchant; accepting a PayPal Credit payment is the same as accepting any other PayPal payment. However, if you make PayPal sales online, you can promote PayPal Credit financing options on your website, which might be of added benefit to businesses that sell large-ticket items online.
How Do You Get Paid With PayPal Credit?
There are multiple ways you can allow customers to pay with PayPal Credit:
- PayPal Credit At POS: Some, but not all, point of sale systems allow you to accept in-person PayPal payments. Some examples of PayPal-friendly point of sales include Shopkeep, Vend, and of course PayPal’s own PayPal Here.
- PayPal Credit On Your Website: If you allow customers to check out with PayPal on your website, PayPal will give you promotional banners that let you advertise financing options to your customers. You can also include a PayPal Credit button to prompt customers who don’t have PPC set up as their preferred PayPal payment method to pay using PayPal Credit.
- PayPal Credit With Mobile Payments: If you accept Google Pay or Apple Pay at your point of sale, and the customer has PayPal with PayPal Credit set up as their default payment method, customers might pay using PayPal Credit using their smartphone.
- PayPal Credit With PayPal Invoice: When you send a customer a PayPal Invoice, your customer may use PayPal Credit to pay that invoice.
Of course, only customers who have been approved by PayPal Credit may pay with PayPal Credit, and then only up to the amount of their credit limit. Customers who have set up PayPal Credit as their preferred PayPal payment option will automatically pay for all their PayPal purchases using Credit; customers can also choose PayPal Credit in their PayPal Wallet for individual transactions when presented with this option at checkout.
How Can You Use PayPal Credit For Business Purchases?
Businesses might also potentially use PayPal Credit to make business purchases from merchants or vendors that accept PayPal. However, because it is geared toward consumers, credit limits on this line of credit are on the low side and APRs are on the high side. Unless you have a very small enterprise, you are better off getting a traditional line of credit or business credit card to make business purchases.
As an alternative to making business purchases with PayPal Credit, PayPal also offers small business loans ranging from $5,000 to $500,000 with LoanBuilder: A PayPal Service.
PayPal Credit can be a convenient option to have in your virtual wallet if you want the ability to make purchases with PayPal even when you don’t yet have the funds to do so—for example, eBay businesses frequently make purchases using PayPal. Or, you might use PayPal Credit to finance a large one-time purchase (such as a refrigerator or TV).
You can also use PayPal Credit to send someone money, even if you don’t have that money in your account. If you own a business and already accept PayPal, promoting PayPal Credit as an online checkout option could result in higher purchases. In addition, making your payments in a timely manner can help you build credit, as PayPal now reports your activity to the big credit agencies.
However, bear in mind that you will be charged heavy fees if you don’t pay off your balance at the end of each month (or the end of the 6-month promotional financing period). If you are looking for a larger line of credit to use for your business, you might want to look at our top-rated business line of credit providers. Or if you’re looking for a more flexible credit option with a lower APR, check out this comparison of our favorite credit cards.