What Is PayPal Credit & How Does It Work?

PayPal has one of the biggest payment ecosystems in the business and is one of the few that qualifies as its own payment type (“I’ll PayPal you the money”). In fact, you may be having trouble keeping up with every new feature PayPal unrolls.

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.

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.

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.

Despite filling a very similar niche, PayPal Credit is also not the same thing as PayPal’s Pay in 4 feature. You can think of PayPal Credit as being closer to a credit card, while Pay in 4 is more akin to POS financing. With PayPal Credit, you’ll have gone through the vetting process in advance and can utilize your revolving line of credit at will. You also have more flexibility in how and when you pay off your balance. In the case of Pay in 4, the financing decision is approved (or denied) at checkout, after which you’ll have a very structured repayment plan.

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 since Synchrony Bank will be doing a hard pull on your credit, it’s safe to assume applicants with poor credit or limited credit history may be declined.

Once you have been approved and accept the terms of use, PayPal will give you a credit limit of at least $250. PayPal will periodically review your account and may increase or decrease your credit limit.

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 23.99% on standard purchases and cash advances (at the time of update). Being variable, the APR will fluctuate with the Prime interest rate. The minimum interest charge is $2.

As is the case with credit cards, PayPal Credit extends users an interest-free grace period in which to pay off their entire balance. You will not be charged interest if you:

• Have no balance at the start of your billing cycle.
• Or you had a balance at the start of the billing cycle and you paid the balance in full by the due date in that billing cycle.

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. Note that this is not an introductory offer, but rather an ongoing promotion, so it may be around for years or could end next week.

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.

For late payment fees, PayPal charges $40. This fee is reduced to $29 if you’ve made your minimum payment due date in each of the prior six billing cycles. The returned payment fee is $29.

PayPal Credit Pros & Cons

It’s helpful to think of PayPal Credit as a great starter credit card or something convenient for PayPal users who like the interface and would like to use credit wherever PayPal is accepted. Those are some of the reasons it might work for you. But its low limits and high APR are not for everyone. Here is our list of pros and 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: While not outside of the range of credit card APRs, you may be able to get a better APR from a traditional credit card, especially if you have excellent 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.

FAQs About PayPal Credit

Final Thoughts

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.