PayPal Credit is a source of constant confusion and controversy. Many are confused about how it is different from plain old PayPal and credit cards. For those who have used it, some swear by it while others have called it exploitative or even a ripoff.

PayPal Credit Facts:

• It is easy to get approved
• It is not a physical card
• You can send money to people
• You can buy things online
• You can pay bills
• You cannot use it in stores

Use PayPal Credit For: PayPal Credit is a digital credit line that gives you the ability to buy things, pay bills, or send money to others. You will have the flexibility to pay immediately or over time. This credit line does not come with a credit card and it is built into your PayPal account for online use only.

If you use PayPal Credit to make a purchase of $99 or more, you get 6 months of no interest. But if you fail to pay off your loan within 6 months, you will need to pay back interest retroactively.

Interest Rate: PayPal Credit’s APR is 23.99% for new accounts on regular purchases and cash advances. PayPal Credit’s APR has a minimum interest charge of $2, and the APR changes based on the prime interest rate.

Who can Apply: Anyone can apply for PayPal Credit. But first, you need to have a PayPal account. After that, you can fill out a short online application form for PayPal Credit and get a decision from PayPal in just a few seconds. Just keep in mind that your credit scores will get a slight hit (about 5 points FICO) when you apply for PayPal Credit.

Qualification: PayPal Credit has a lower requirement for credit score than credit cards. Typically, you only need a FICO score of 600 to 650 to get approved. As such, it can be a good tool for people with poor credit scores to build up their credit histories.

Who Accept PayPal Credit: As soon as you are approved for PayPal Credit, you can start using it to buy things and pay bills online. Most websites that accept PayPal also accept PayPal Credit, but there are some exceptions. For example, certain eBay product categories accept PayPal but not PayPal Credit. We will get into that later in this article.

You Can Send Money: You can also use PayPal Credit as a funding source to send money to other people through PayPal. But when you do that, you will be charged a fee immediately. And you will not get 6 months of an interest-free loan in this case.

You Can Increase Limit: If you want to increase your PayPal credit limit, you can contact PayPal customer service. Call PayPal customer service at 1 (888) 221-1161. Alternatively, call the customer service number on your monthly PayPal statement.

Catch for no interest for 6 months: While the “no interest for 6 months” offer of PayPal Credit seems very enticing, there are many pitfalls you should be aware of. For one, if you do not pay off your entire loan within 6 months, you will need to pay back all the interests retroactively starting from the day you made your purchase.

For another, there are cases where people think they have paid off their loans but it turns out they have not due to a policy called “payment hierarchy” used by PayPal in allocating payments. There are some more pitfalls. We will get into all of that in detail later.

Botton line: Despite all these pitfalls, PayPal Credit can be a useful financial tool for people who are disciplined enough to make their payments on time and pay off their loans in 6 months. Due to its lower requirement for credit score than most credit cards, PayPal Credit can also be a useful way for people to build up their credit histories and credit scores.

Pros & Cons of PayPal Credit

Who is PayPal Credit for:

• People with lower credit scores (600 – 650 FICO) who may not qualify for most credit cards
• People who want to build up their credit histories
• People who want to take advantage of its “6 Months with No Interest” benefit
• People who do not mind not being able to use it in stores and on all websites
• People who do not mind dealing with the complexity of “payment allocation” and “payment hierarchy”

Who is PayPal Credit not for:

• People with good credit scores who can qualify for credit cards that offer better benefits
• People who want cash backs and reward points from their spending
• People who want to have access to cash advances at ATMs
• People who want to use it in stores and on all websites
• People who do not want to keep track of the complexity of “payment allocation” and “payment hierarchy”

What You Can Do With PayPal Credit

The main use case of PayPal Credit is online shopping. According to PayPal, you can use PayPal Credit at the “millions” of websites that accept PayPal.

While most websites that accept PayPal will also accept PayPal Credit, there are some exceptions to that rule – some places like eBay accept PayPal but not PayPal Credit.

Another use case of PayPal Credit is sending money. You can borrow money from PayPal Credit and send that money to other people through PayPal.

One major shortcoming of PayPal Credit is that you cannot use it at bricks and mortar stores. This makes it far less useful than a regular credit card. But there is a trick you can use to get around that.

How to Apply for PayPal Credit

The only place you can apply for PayPal Credit is online on the PayPal website. The application is very simple and quick – you will get a response from PayPal within a few seconds to let you know whether your application is approved or denied.

Before you apply for PayPal Credit, make sure you have the following:

• Your PayPal account login email & password
• The last 4 digits of your Social Security Number
• Your date of birth
• Your mobile phone number
• Your after-tax income

Step by Step Instruction on Applying for PayPal Credit

1. Go to the PayPal Credit homepage on the PayPal website
2. Click on the Apply Now button in the center of the page
3. Sign in to your PayPal account using your email address and password
4. Confirm your billing address. Click the Update label below your billing address if it is incorrect and you need to change it
5. Click Continue
6. Fill in the PayPal Credit application form with your date of birth, your income after taxes, and the last 4 digits of your Social Security Number
7. Click the button Agree and Review Terms
8. You will get a response from PayPal within a few seconds to let you know whether your application is approved or denied
9. If your application is approved, your PayPal Credit account will be automatically linked to your PayPal Account
10. If approved, your PayPal Credit account will be assigned a credit line of at least $250 based on your credit score and your after-tax income. Your credit line can go up to $20,000
11. You can start using your PayPal Credit right away. There is no need to wait for a physical card to arrive in the mail

Who Can Qualify for PayPal Credit

PayPal has not made public its criteria for approving PayPal Credit applications, so we do not know for sure what it takes to qualify for PayPal Credit.

But based on user reports on the Internet, the lowest credit scores approved are around 600 FICO. It is worth pointing out that PayPal uses the FICO scores from the credit bureaus Equifax and Experian.

While 600 is the lowest credit score to get approved for PayPal Credit, to have a reasonable chance of getting approved, you should aim for having around a 650 FICO credit score.

Whether the bar is set at 600 or 650, getting approved for PayPal Credit is still significantly easier than getting approved for most credit cards. For example, the minimum credit score required to get a PayPal credit card is 700. Lower-end credit cards from Chase such as the Chase Freedom Unlimited and the Chase Freedom Flex require a minimum credit score of 690, while high-end Chase credit card such as the Chase Sapphire Reserve requires a credit score of at least 720. In comparison, PayPal Credit’s minimum credit score requirement of 600 – 650 is very lenient.

Besides having a certain credit score, PayPal Credit applicants also need to be at least 18 years old and a resident of the United States.

Related: Types of Chase Credit Cards | Fees | APR | Rewards Chart

PayPal Credit Fees

The various fees associated with PayPal Credit include:

• Annual Fee: $0. PayPal Credit does not charge any annual fee
• Late Payment Fee: For each billing cycle in which you do not pay the minimum payment amount by the due date of that billing cycle, you will be charged a Late Payment Fee
  • $29, if you have paid your minimum payment due by the due date in each of the prior 6 billing cycles; OR
  • $40, if you have failed to pay your minimum payment due by the due date in any one or more of the prior 6 billing cycles
  • The Late Payment Fee will not be more than the minimum payment that was due
  • The Late Payment Fee will not exceed $5 if the minimum payment due on your account is less than $29
• Returned Payment Fee: If you try to make a payment to PayPal Credit and your payment gets denied – for example, your check gets bounced or your ACH request gets denied – you will be charged a Returned Payment Fee
  • $29 per returned payment
  • The Returned Payment Fee will not be more than the minimum payment due immediately prior to the date on which the payment is returned
• Cash Advance Fee: 2.9% + $0.30. Every time you use PayPal Credit as the funding source for sending money to someone over PayPal, you will be charged this Cash Advance Fee upfront
• Minimum Interest Charge: $2. In any billing cycle in which you owe interest on non-promotional transactions, you will be charged at least $2 in interest

Differences Between PayPal & PayPal Credit

PayPal and PayPal Credit are complementary to each other.

PayPal is an online payment platform that allows you to buy things, pay bills, and send money to other people. To fund those payments, PayPal allows you to choose from a wide variety of funding sources – credit cards, debit cards, PayPal account balance, ACH bank account transfers, and more.

PayPal Credit is one of those available funding sources. Instead of drawing money from your bank account or your credit card account to pay for a transaction through PayPal, you can opt to use PayPal Credit as the source of the funding for your transaction.

Differences Between Regular Credit Cards & PayPal Credit

While both PayPal Credit and regular credit cards allow you to borrow money on demand, there are a few major differences between them:

• 6 Months of No Interest: PayPal Credit offers 6 months of no interest for purchases of $99 or more. That is its biggest selling point. While many credit cards offer introductory offers of 0% APR, those “No Interest” offers only last a fixed period of time, typically 12 to 18 months. On the other hand, PayPal Credit’s “No Interest for 6 Months” offer is not introductory – it is a permanent benefit of PayPal Credit
• Physical Card: Unlike regular credit cards, PayPal Credit does not come with a physical card you can carry with you
• Card Number: Also unlike regular credit cards, PayPal Credit does not give you a card number that you can enter into online checkout forms
• In-Store Acceptance: Credit cards are accepted in countless bricks and mortar stores. PayPal Credit cannot be used in any physical store
• Online Acceptance: Pretty much all online stores accept credit cards. Far fewer online stores accept Pal Pal Credit. Perhaps more importantly, Amazon, the most popular online store, does not accept PayPal or PayPal Credit
• Cash Advance: Credit cards allow you to get cash at ATMs through their cash advance feature. PayPal Credit does not let you withdraw cash anywhere
• Rewards: Many credit cards such as Chase Freedom Flex or Chase Sapphire Reserve give you cash backs or reward points based on how much money you spend using that card. PayPal Credit does not offer any cash back or reward benefit

Related: Types of Chase Credit Cards | Fees | APR | Rewards Chart

The Disadvantages of PayPal Credit

While the “No Interest for 6 Months” benefit of PayPal Credit does sound good, there are a few pitfalls that any user of PayPal Credit needs to be aware of.

PayPal Credit Retroactive Interest

For purchases of $99 or more, you get a grace period of 6 months with no interest. But if you do not pay off your entire loan by the end of the 6 months, you will be hit with interest.

This interest does not just start accruing from Month 6 going forward. Instead, you will be charged retroactive interest going all the way back to the day you first made the purchase. It sounds ridiculous, but it is true.

For example, say you made a $100 purchase on PayPal Credit. It is more than $99 so it qualifies for no interest for 6 months.

If you have not completely paid off that $100 loan at the end of 6 months, you will need to start paying interest.

It will not just be the interest going forward from that point on. Instead, you will also need to go back to the day the purchase was made and pay all the back interest retroactively.

Interest on Loan Portion You Have Already Paid Off

As we have mentioned above, if you fail to pay off your no-interest loan from PayPal Credit within 6 months, you will be charged interest retroactively.

The interest you will be charged will not just be on the unpaid portion of your loan. In addition to that, you will also be charged interest on the portion of the loan that you have already paid off.

Using our previous example of the $100 purchase again. Let’s say you have paid off $90 of that $100 by the end of the 6-month period.

Now you will be charged retroactive interest not just on the $10 you have not paid off but also on the $90 you have already paid off.

Say you paid off $20 by the end of the 1^st month, then you will be charged 1 month of interest on that $20. Then let’s say you paid off another $15 by the end of the 2^nd month. You will be charged 2 months of interest on that $15. So on and so forth.

As you can see, if you do not pay off your entire no-interest loan within the 6-month grace period, you will be hit with a massive amount of back interest on Month 7.

These 2 pitfalls of “retroactive interest” and “interest on loan portion you have already paid off” came as great surprises to a lot of users of PayPal Credit.

Payment Allocation Based on Payment Hierarchy

PayPal Credit has 4 different types of transactions:

1. Standard Purchases
2. Promotional Purchases – Deferred Interest Purchases
3. Promotional Purchases – Easy Payments Purchases
4. Cash Advances

Different types of transactions have different interest calculations and lengths of grace periods. To minimize the amount of interest you pay, it is important to pay off certain transactions first based on their transaction types and expiration dates.

For example, you would want to pay off Standard Purchases completely within 1 billing cycle because if you don’t, you will be charged interest on them. On the other hand, you do not have to pay off Deferred Interest Purchases as quickly because you have a 6-month no-interest grace period for this type of transaction.

If the 6-month deadline is coming up for a Deferred Interest Purchase, then you would want to pay off that purchase first or you would be hit with massive retroactive interest.

As you can see, this problem of payment allocation in PayPal Credit can get very complicated very quickly. PayPal Credit has a complex policy of payment allocation based on a “Payment Hierarchy.”

When you make a payment to PayPal Credit, it will allocate your payment to certain transactions first. According to PayPal Credit’s Terms & Conditions, it will allocate each payment in the amount of the minimum payment due or less according to this payment hierarchy:

1. First to pay billed monthly plan payments on any Easy Payments Purchases
2. Then billed interest
3. Then billed fees
4. Then the principal balance
5. Then any other amounts due

After that, any payment amount in excess of the minimum payment due will be allocated to first pay the balances with the highest interest rate, then the next highest interest rate, and so forth.

But this payment allocation hierarchy means that sometimes a Standard Purchase or an expiring Deferred Interest Purchase will not get paid off in time. And the user will unnecessarily get hit with interest as a result of this policy.

This is exactly what happened to many PayPal Credit users. They thought they have paid off a Standard Purchase or an expiring Deferred Interest Purchase but it turned out their payments were allocated to pay off something else first. As a result, they were charged interest unnecessarily. Many of them got angry and went online to complain.

PayPal allows you to override its payment allocation hierarchy. You need to call its customer service at 1 (888) 221-1161 and tell them specifically how you want your payment to be allocated. Even then, things could get complicated and become hard to keep track of. If you want to keep things simple, one possible solution is to use PayPal Credit for just one purchase at a time.

Mail Payment Processing Delay of 7 – 10 Business Days

PayPal Credit allows you to send in your payment by mail. However, it may take 7 to 10 business days to process your mail payment. That means by the time PayPal gets around to process your mail-in payment, your payment due date may have already come and gone.

You will be hit with a Late Payment Fee as well as assorted standard and retroactive interests as a result. This is another pitfall that many PayPal Credit users have only found out about much too late.

You should try to avoid mail-in payment altogether. But if you must send in your payment by mail, do it at least 20 business days before your payment due date – 10 business days for the mail to reach PayPal and 10 more business days for PayPal to process your payment.

PayPal Credit Key Terms and Conditions

PayPal Credit used to be called Bill Me Later. It was acquired by PayPal in 2008 and subsequently had its name changed to PayPal Credit.

PayPal Credit is a personal line of revolving credit. It is similar to a credit card in the sense that it allows you to borrow from it to buy things without actually having the money to pay for your purchases.

Unlike credit cards, PayPal Credit is online only. You will not be able to use it at bricks and mortar stores.

Also unlike credit cards, you do not get a physical card or a credit card number with PayPal Credit. That means you cannot use PayPal Credit on websites that require you to type in a credit or debit card number.

You can only use PayPal Credit on websites that specifically accept it. Most of the millions of websites that accept PayPal will also accept PayPal Credit, but there are some exceptions.

For example, eBay accepts PayPal, but certain eBay categories such as eBay Motor and adults do not accept PayPal Credit.

The biggest selling point of PayPal Credit is that when you use it to make a purchase of $99 or more, you will not be charged any interest for 6 months. And if you pay off that loan entirely before the end of the 6-month period, you will not need to pay any interest at all.

In other words, you will be getting a loan with no interest for up to 6 months. If you fail to pay off the loan entirely within 6 months, you will be charged back interest retroactively.

For purchases that are less than $99, you do not get the “6 months no interest” benefit. You have to pay it all off within 1 billing cycle or you will have to pay interest.

You can also borrow from PayPal Credit to send money to other people through PayPal. But when you do, you will be charged an upfront fee and you will be charged interest starting immediately.

As you can see from above, PayPal Credit treats different types of transactions differently when it comes to fees and interests. In total, there are 4 different types of transactions:

1. Standard Purchases
2. Promotional Purchases: Deferred Interest Purchases
3. Promotional Purchases: Easy Payments Purchases
4. Cash Advances

We will get into these 4 types of transactions in more detail in the sections below. Meanwhile, the following table summarizes the main terms and conditions of PayPal Credit.

PayPal Credit – Key Terms and Conditions

Purchases $99 or more	No interest for 6 months
Purchases less than $99	No interest for 1 billing cycle
Sending Money	Interest starts accruing immediately
Annual Fee	$0
Late Payment Fee	$29 $40 $5
Returned Payment Fee	$29
Minimum Interest Charge	$2
Cash Advance Fee	2.9% + $0.30
APR for Purchases	23.99%
APR for Cash Advance	23.99%

Standard Purchases

Most purchases you make with PayPal Credit that cost $98.99 or less are considered Standard Purchases. You do not get the “6 months with no interest” offer with Standard Purchases.

If you pay off the full balance of your Standard Purchases by the payment due date on your statement, you will not be charged any interest. If not, you will be charged the standard PayPal Credit APR for purchases – 23.99%. This APR is not fixed and will fluctuate with the market based on the Prime Rate.

In any billing cycle in which you owe interest on Standard Purchases, you will be charged at least $2 in interest.

No matter how long it takes for you to pay off a Standard Purchase, there is a minimum payment that you have to make every statement cycle. If not, you will be charged a Late Payment Fee.

Deferred Interest Purchases

Any purchase you make with PayPal Credit that is $99 or more qualifies as a Promotional Purchase with Deferred Interest. You have 6 months to pay off the amount of the purchase. And if you do, you will not be charged any interest.

But if you fail to completely pay off the amount by the end of the 6-month period, you will have to pay interest – not just from that point on but retroactively going back to 6 months ago when the purchase was first made.

If you do end up having to pay interest on a Deferred Interest Purchase, you will be charged the same standard PayPal Credit APR that is charged for standard purchases – 23.99%. This APR is not fixed and will fluctuate with the market based on the Prime Rate.

No matter how long it takes for you to pay off a Deferred Interest Purchase, there is a minimum payment that you have to make every statement cycle. If not, you will be charged a Late Payment Fee.

Easy Payments Purchases

Easy Payments Purchases are purchases of $98.99 or less that are part of a special promotion. Normally, purchases of $98.99 or less are considered Standard Purchases and are charged the standard PayPal Credit Purchase APR of 23.99%.

Since Easy Payments Purchases are part of a special promotion, you will be charged either a lower APR or you will not be charged interest at all.

In any case, if you pay off the entire amount of an Easy Payments Purchase by the payment due date on your statement, you will not be charged any interest.

The exact terms of an Easy Payments Purchase will be laid out when your make the purchase and they can vary from one purchase to another depending on the specific promotions themselves.

No matter how long it takes for you to pay off an Easy Payments Purchase, there is a minimum payment that you have to make every statement cycle. If not, you will be charged a Late Payment Fee.

Cash Advances

When you choose PayPal Credit as the funding source to send money to someone through PayPal, it is considered a Cash Advance by PayPal Credit.

All Cash Advances will be charged the standard PayPal Credit APR for Cash Advances – 23.99%. Unlike purchases, there is no special promotional rate for Cash Advances and there is no 6-month or even 1-month grace period of no interest. You will be charged interest right away.

In any billing cycle in which you owe interest on Cash Advances, you will be charged at least $2 in interest.

Every time you use Cash Advances, you will be charged an upfront fee of 2.9% + $0.30. This is the same fee you pay when you use a debit or a credit card to send money through PayPal. This upfront fee is on top of the 23.99% interest you have to pay on Cash Advances.

How Will PayPal Credit Affect Your Credit Scores

There are implications for your credit scores when you apply for PayPal Credit and when you use PayPal Credit on an ongoing basis.

Hard Inquiry on Applying for PayPal Credit

When you apply for PayPal Credit, PayPal will do a “Hard Inquiry” on your credit reports. PayPal uses 2 credit bureaus – Equifax and Experian. As a result, PayPal Credit’s hard inquiry will only show up on your credit reports at those 2 credit bureaus.

A hard inquiry can reduce your FICO score by up to 5 points. The hard query will remain on your credit reports for about 2 years but it will stop impacting your credit score in less than 1 year.

In the bigger scheme of things, applying for PayPal Credit will not cause a significant hit on your credit score.

Related: What is SYNCB on My Credit Report?

Ongoing Reporting to Credit Bureaus

Before 2019, PayPal Credit did not report its users’ activities to credit bureaus. It means that back then, you could have missed your payments to PayPal Credit and it would have no impact on your credit score.

That has all changed. In 2019, PayPal Credit started reporting to credit bureaus. If you miss a payment to PayPal Credit now, you will be reported to credit bureaus and your credit score will suffer as a result.

The plus side of this new development is that PayPal Credit has become a good way for people to build up their credit histories.

Every time you make an on-time payment to PayPal Credit, it will get reported to the credit bureaus and incorporated into your credit reports there.

Over time, you will be able to build up your credit history this way.