How to use PayPal Credit for online shopping

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 Credit, which functions a little differently. Here’s how it works.

See related: How to send, receive money using Venmo

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.

See related: How to pay bills and receive payments using Plastiq

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 24.43%, while the average rewards card APR is 16.03%. 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.

Is there a limit to how much money you can spend with PayPal Credit?

Like other lines of credit, how much you can qualify for depends on your individual credit and circumstances. Lines of credit can be anywhere from $250 up to $20,000, says Schmidt. 

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.

If you need to keep things simple, you could opt to use it for one purchase at a time, says McClary.

Does PayPal Credit offer any buyer protections for lost, damaged or undelivered merchandise?

“PayPal provides purchase protection to cover all eligible purchases,” says Bass. It “applies when users are charged for something they didn’t purchase, if the order never arrives or if the order arrives but is significantly different from it was described.”

According to Bass, customers must report the problem within 60 days and have an account in good standing to make a claim.

To do so, you can call or submit a form through the site. At that point, PayPal will “investigate the transaction issue and refund the full cost of eligible purchases plus original shipping,” she says.

Customers can also file a dispute through PayPal Credit’s bank, Synchrony Bank.

“If you file a dispute through Synchrony Bank that is subsequently approved, the transaction is no longer covered under PayPal purchase protection,” Bass says.

But if the initial purchase stemmed from user error – like paying the wrong person or typing the wrong amount – your only recourse is to ask the recipient to return the money, according to the site.

Is PayPal Credit protected against loss, fraud and theft?

If someone uses the account without your permission, you won’t be liable for the charges, according to the company’s site, as long as you report the theft within 60 days.

“We’re not going to hold customers responsible for any kind of account takeover,” says Schmidt.

PayPal Credit will hold you accountable, though, for changes made by someone you once allowed to use the account.

What kind of security features does PayPal Credit offer?

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 charges can also serve as an early warning system for consumers – as long as you’re seeing the notifications, Velasquez notes.

Where can you use PayPal Credit?

You can only use PayPal Credit online with retailers who accept PayPal. But you might be able to use it in-store in the future, according to Schmidt.

See related: How to use the Token app

Can you do a balance transfer with PayPal Credit?

You can’t transfer a balance from another card to your PayPal Credit account.

“PayPal Credit does not have a balance transfer feature,” says Bass.

She also stated that customers cannot transfer a PayPal Credit balance to another card. Customers need to pay their balance through PayPal or with a bank account.

Are PayPal Credit transactions public?  

No. The company does share data about you with its affiliates and partners but never for marketing purposes, says Hunter.

Does PayPal Credit help you build credit?

In 2019, PayPal Credit started reporting to the credit bureaus: Equifax, Experian and TransUnion. So if you have a thin credit profile, it can help you build credit – as long as you pay bills on time and keep your utilization low.

See related: The 3 national credit bureaus: How Equifax, Experian and TransUnion work

Do you need extra security on your device?

When using PayPal Credit – or any other online payment method – it’s smart to keep your security programs current and refrain from using public networks or computers.

• Enable PIN, fingerprint or facial recognition if your device offers it, says Velasquez. That way, if someone walks away with your device, they won’t immediately have access to your financial accounts.
• Turn on two-factor authentication, says John Breyault, vice president of public policy, telecommunications and fraud for the National Consumers League. That way, potential crooks will need to do more than get your email address and guess your password.
• Don’t share accounts. If you do, lenders and financial institutions could hold you responsible for another person’s charges – even ones you didn’t authorize.
• Use “unique and strong” passwords for each financial or shopping account, says Velasquez. “And don’t save the password” on your device, she adds.
• Log off from your account after each transaction. And clear your history and cookies for additional security.