What is PayPal Credit?

Is it a loan? Is it buy now pay later? PayPal Credit is neither – it’s most similar to a credit card but with a catch. Here’s what you need to know.

Representative example: When you spend £1,200 at a purchase rate of 23.9% (variable) p.a., your representative rate is 23.9 % APR (variable).

What is PayPal Credit?

PayPal Credit is a credit limit that’s attached to your usual PayPal account and allows you to spread the cost of your online spending in monthly instalments. It works in a similar way to a credit card but without the plastic. Instead, you simply make your purchase online and then choose PayPal Credit as your funding source at checkout.

Like a credit card, you’ll receive a monthly statement, and you’ll need to make a minimum repayment on your balance each month. Repayments can be made by monthly direct debit, directly from your PayPal account or by speaking to a customer agent.

You can use PayPal Credit to make purchases at thousands of online stores, and you can manage your PayPal account on your desktop, tablet or mobile.

Representative example:

How does PayPal Credit work?

PayPal Credit works by letting you spread the cost of your spending over a number of months. You’ll benefit from a 4-month interest-free period on each eligible purchase. This means that rather than being an introductory offer, you’ll get the 0% for 4 months each time you make a purchase, as long as you have enough available credit limit.

There’s just one catch – to qualify for the 0% offer, you must spend £99 or more, either in 1 transaction or on your checkout basket total.

Any purchase costing less than £99 won’t be eligible for the 0% deal, and you’ll be charged interest at a rate of 23.9% p.a. (variable) if you don’t pay for it by your statement deadline. This rate will also apply to any remaining balance after the 4-month 0% deal ends.

In some cases, you can choose to spread the cost for longer using instalment offers. These are available at selected online retailers and let you spread the cost over 6 to 48 months at promotional interest rates lower than the standard rate of interest. Your offer will vary depending on the merchant, and some will be interest-free. However, you must make the agreed repayment amount each month until you’ve repaid the balance.

Note that PayPal Credit is not the same as PayPal Pay in 3. Pay in 3, as the name suggests, allows you to split your purchase into 3 interest-free payments and works in a similar way to many buy now pay later (BNPL) schemes. You make the first payment at the checkout, and the rest in 2 payments every month on the same date. Purchases must be at least £30 and no more than £2,000, and it is only available for certain merchants and goods.

How are the minimum repayments calculated?

Your minimum repayments for PayPal Credit are calculated based on your purchases and will include the following:

• Any instalment offer payments due for that month
• The full balance if less than £5 or the higher of £5 or 2% of the outstanding balance
• Any interest, charges or arrears

The example below highlights how this works:

Instalment offer	Standard balance	0% for 4 month balance
£600 at 0% interest, spread over 6 months	£300	£100

The minimum repayment for each part would be calculated as follows:

£100

2% of £300 = £6

2% of £100 = £2

Your minimum repayment would be £100 + £6 + £2 = £108

Your minimum repayments will be shown on your monthly statement and in the PayPal Credit section of your PayPal account.

You can request a printed copy of your statement, but you will be charged a fee of £5.00.

What happens if you make a late payment or miss a payment?

If you’re late or miss a repayment, you risk losing your 0% offer and you’ll start paying interest. You may also be charged a late payment fee of £12 and late payments can affect your credit record.

If you’re worried about missing a payment, speak to the PayPal customer service team as soon as possible.

• Warning: Late repayments can cause you serious money problems. For help, contact the government’s free money advice website, MoneyHelper.

How do you apply?

To apply for PayPal Credit, you must meet the following criteria:

• Be a UK resident aged 18 or over
• Have a good credit history
• Not have recently been declared bankrupt
• Be employed and have an income greater than £7,500 a year

You can apply online by filling in a short form, and if you’re accepted, you’ll have a credit limit linked to your PayPal account almost immediately. A hard credit check will be carried out when you apply, which means a footprint will be left on your credit report that other lenders can see.

Customer reviews

PayPal Credit scores poorly on Trustpilot, with a rating of 1.3 out of 5 based on over 27,000 reviews. This is considered a “bad” rating overall (updated December 2023).

A total of 82% of customers gave PayPal Credit a “bad” rating, with negative comments focusing on poor customer service, inflexibility and problems with direct debit payments.

However, others have commented on the good customer service and ease of use.

Is PayPal Credit the same as a credit card?

PayPal Credit works in a similar way to a credit card, but it’s not the same. For a start, you won’t receive a plastic card and you won’t be able to use PayPal Credit in store – you can only use it online.

Both allow you to spread the cost of your spending over several months. But with a credit card, any 0% offer usually only lasts for a set time (say, 12 months) and does not reset for each new purchase. However, this also means that if you’ve made one big purchase, you’ll have longer to pay it off without paying interest.

Another key difference is that a credit card offers purchase protection under section 75 of the Consumer Credit Act. This means that any purchases costing more than £100 but not more than £30,000 will be covered should something go wrong.

PayPal Credit does not offer section 75 protection, although you will benefit from PayPal Buyer Protection. This means if a purchase doesn’t arrive or doesn’t match the seller’s description, you could get a refund. You also won’t be liable for any unauthorised purchases from your PayPal Credit account.

What are the alternatives?

The main alternative to PayPal Credit is to use a credit card. If you want to spread the cost of a large purchase over a number of months, a 0% purchase credit card could enable you to avoid paying interest for up to 24 months. Monthly payments are flexible but remember that if you don’t clear your balance before the 0% deal ends, interest will kick in.

Another option is to use buy now pay later. There are a number of different platforms available, including Klarna, Clearpay and Laybuy, and they all work slightly differently. For example, you might be able to split your shopping total into even parts and repay this at designated intervals (weekly, fortnightly or monthly), or you might have a defined interest-free period in which you repay the amount owed, or you might have a longer payment term that includes interest. Just make sure you read the terms and conditions carefully first.

Pros and cons of PayPal Credit

Our verdict

If you’re a fan of PayPal and you’re looking to borrow on credit, PayPal Credit might be worth a look. A big selling point is that each eligible purchase attracts 0% interest for 4 months, helping you to spread the cost. The big downside is that to get this benefit, each purchase must be for £99 or more, which means you’ll be paying interest on anything less than this. You’ll also pay interest if you haven’t paid off your purchase within 4 months.

In some cases, you may benefit from better deals through instalment offers, but remember that these won’t be available at all retailers. The fact that you can only use PayPal Credit online also makes it fairly inflexible, and you may be better off with a credit card instead.

Frequently asked questions

• Will PayPal Credit hurt your credit score?

  If you don’t keep up with your repayments, you could harm your credit score – just as you could with any other form of credit.

• How can I increase my PayPal Credit limit?

  PayPal will review your credit limit monthly and may invite you to increase your limit once you’ve been a PayPal Credit customer for at least 3 months. You cannot request a credit limit increase yourself.

• What happens if I spend over my credit limit?

  You may be charged a return payment fee of £12.00 if you have insufficient funds to cover the payment.

• Is it hard to get PayPal Credit?

  Not if you have a good credit score and meet the eligibility criteria. The application form only takes a few minutes to complete and the credit check and approval process only take a few seconds.

• Which retailers accept PayPal Credit?

  There are thousands of online retailers that accept PayPal Credit. You can view some of them here.

• Who is PayPal?

  PayPal launched in 1998 as Confinity and the first version of its electronic payments system appeared a year later. The company was renamed PayPal in 2001 and eBay bought it in 2002.