What is PayPal Pay in 4 and how does it differ from other BNPL services?

What is PayPal Pay in 4 and how does it differ from other BNPL services? | RateCity

Buy now, pay later (BNPL) services like Afterpay allow you to buy what you want and pay for it later in smaller instalments. Most of these services don't charge any interest or account-keeping fee to you, but they charge a late payment fee if you can't keep up with your repayment plan. 

For instance, Afterpay charges you a $10 fee if you miss a repayment. A further $7 is charged if an instalment remains unpaid for more than a week. If you still don't pay up, the maximum late fee you may be charged is capped at the lesser of $68 or 25 per cent of the purchase price. Leading payments giant PayPal, however, doesn't believe in charging late fees to customers. 

PayPal believes that "customers miss payments by mistake, not by design". Their BNPL service Pay in 4 doesn't charge any late fees to users, which means it is completely free to use, even if you miss a payment by mistake. However, like Afterpay and other BNPL platforms, PayPal will inform credit bureaus about your less-than-perfect payment history, which can hurt your credit score.

Disclaimer

This article is over two years old, last updated on September 4, 2022. While RateCity makes best efforts to update every important article regularly, the information in this piece may not be as relevant as it once was. Alternatively, please consider checking recent bnpl articles.

What is PayPal Pay in 4, and how does it work?

PayPal Pay in 4 is a BNPL service that allows you to purchase an item online and pay for it in four equal instalments. You pay the first instalment at the time of purchase, and the remaining three instalments fall due every two weeks until the balance is cleared. The payments are automatically deducted from the source specified by you when using the service, which may include your credit card, debit card, or bank account. 

You can use Pay in 4 to pay for items priced between $30 to $2,000. You don't have to sign up for using the service if you are an existing PayPal user. If your PayPal account is in good standing, you should be able to select the Pay in 4 option from your wallet at checkout. 

Interestingly, there's no maximum spending cap specified by PayPal for its Pay in 4 service. While the maximum amount you may spend on a single purchase using Pay in 4 is capped at $2,000, the total amount you can spend using the service on multiple purchases is not exactly known. However, the Pay in 4 option will no longer appear at checkout once you reach your spending limit.

Do I have to pay anything to use PayPal Pay in 4?

No, PayPal doesn't charge any interest, account keeping fees, or late payment fees to customers for using the service.

What happens if I miss a payment?

PayPal Pay in 4 doesn't charge you a fee when you miss a repayment, but you should be aware that if you continue to miss payments, PayPal may report a default to credit reporting agencies, which can adversely impact your credit and the ability to access financing in the future. Furthermore, you won't be able to use the service anymore until you pay off the balance.

If you know you won't be able to pay an upcoming instalment, it's advisable to contact PayPal and inform them in advance. There is a good chance that they will work with you to understand when you can pay to help you get your account into good standing again.

Will using PayPal Pay in 4 affect my credit?

One way in which PayPal Pay in 4 may affect your credit score is by running a credit check on you when you use it as a payment method for the first time. Even though PayPal doesn't run a credit check on every customer, a credit check on select customers is possible. That being said, a single credit check may not impact your credit score. However, it can appear on your credit report as a hard inquiry, which can be seen by any lender that checks your credit report in the future. If several such inquiries are listed on your file too close to each other, it could raise a red flag for potential lenders by making you appear credit hungry.

In general, PayPal Pay in 4 can be a helpful tool for budgeting small purchases by paying for them over six weeks without paying anything to use the service. You are not even charged any late fees by Pay in 4 if you are unable to make a payment. However, if you default, it could end up on your credit file and pull your credit score down.  

In the end, as with any other form of credit, it's up to you to use the service responsibly to manage your finances and avoid falling into a debt trap.

If you are already facing financial stress from debt, using PayPal Pay in 4 (or any other BNPL service) to meet your everyday expenses may not be a practical solution in the long run. Even though you are not charged anything for the service, if you use it to purchase items you can't afford to repay, you may eventually fall behind on your repayments, leading to the possibility of a default being listed on your credit report. This could impact your chances of accessing other forms of credit in the future, as a default could show up on your file when you apply for a home loan or even a credit card, and is a red flag for potential lenders. 

If you are struggling to manage your expenses, taking on more credit may not improve your situation. Instead, you may consider reassessing your budget or seek help from a financial counsellor by calling the National Debt Helpline to find a long-term solution for getting your finances back on track. 

If you are already using PayPal Pay in 4, and you know you will be unable to make a repayment, you may contact their customer service team to discuss your repayment schedule to avoid a payment default.

Questions you may have

What are the alternatives to humm I could consider?

Afterpay and Zip Pay are the leading BNPL providers in Australia. However, they only allow smaller transaction amounts, comparable to the 'Little things' wallet on your humm account. 

If you are looking for help with a bigger expense, Brighte is one BNPL platform that may allow you to borrow a maximum of $30,000 for up to 60 months. However, Brighte generally only offers interest-free payment plans for making energy-efficient upgrades to your home, such as solar and batteries, or other home improvement projects. 

Do BNPL service providers charge late payment fees?

BNPL service providers will invariably charge you late fees if you miss your repayments, which can range from $5-$15 each time the payment is delayed. Late payment fees are also usually capped at either a set dollar figure or as centage of the outstanding balance.

Can I sign up on multiple BNPL platforms?

You can sign up for multiple BNPL services, but consider using just one platform as you will be accumulating multiple debts otherwise, which can be difficult to keep track of. You also risk having to pay more fees to more providers.

What can I buy using BNPL instalment payments?

BNPL services are most commonly used for online shopping, such as purchasing clothing or electronics online or even big-ticket purchases like plane tickets or white goods. They can be accessed via the app store or online from the provider's website. Different retailers will allow different BNPL services to be used at checkout, so it’s best to research which stores are affiliated with a BNPL service before you sign up.  

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Product database updated 23 Nov, 2024
Fact Checked

This article was reviewed by Personal Finance Editor Alex Ritchie before it was published as part of RateCity's Fact Check process.

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