The trend of “buy now, pay later” (BNPL) programs has increased significantly since March 2020. One service provider, BNPL app Afterpay, for instance, saw a 186% increase in sales in November 2020, compared with the same time in the previous year.
PayPal has joined the BNPL movement with its Pay in four installment program. If you’re having cash flow issues, learn how Pay in 4 can help you afford certain purchases without paying upfront, and discover other BNPL programs.
What Is PayPal’s Pay in 4?
Pay in 4 is a BNPL service—also sometimes called a point-of-sale installment loan—that enables you to make purchases at millions of online stores without paying the full price upfront. Instead, you’ll pay what you owe in four equal and interest-free installments.
While there are a few limitations and restrictions, you can use the program to make certain purchases more affordable by paying them off over time instead of all at once. It’s especially beneficial for someone who would otherwise use a high-APR credit card that charges interest while they pay off the balance.
How Does PayPal’s Pay in 4 Work?
The Pay in 4 program is available for purchases of $30 to $600 at millions of online stores that accept PayPal as a payment method.
When you’re ready to make your purchase, select PayPal as the payment method. From there, you can choose Pay in 4 if it’s available. Then, select one of the accounts you’ve connected to your PayPal account (e.g., checking, credit card, debit card) to fund the payment plan. If approved, you’ll make the first payment on the date of the purchase and three additional payments over the course of the next six weeks.
For example, if you were to make a $100 purchase with Pay in 4, you’d make a down payment of $25 when you finish the transaction, then three more $25 payments, one every 15 days.
How Much Does It Cost?
Pay in 4 charges no interest or origination fees. If you’re late on a payment, though, you might pay a penalty, and that amount can vary, depending on the state where you reside.
Late payments might not be an issue for most people, as PayPal automatically charges the debit or credit card you shared when you first signed up for the loan. You may run into some issues, though, if you don’t have enough funds in your checking account or enough available credit on your credit card to cover it. If you anticipate that happening, you can log into your PayPal account to change your payment method.
If you use a credit card to enroll in an installment program like Pay in 4, you’ll pay interest on your payments if you don’t pay them off by your credit card bill’s due date.
How Does It Affect My Credit Score?
When you apply to use Pay in 4, PayPal may run a soft credit check to determine your eligibility, but it won’t affect your credit score.
Who Is Eligible?
Pay in 4 is available in 44 states and the District of Columbia. The excluded states are Georgia, New Mexico, North Dakota, Missouri, South Dakota, and Wisconsin. The service isn’t available in U.S. territories, either.
You must be at least 18 years of age—19 in Alabama and Nebraska—and have a PayPal account in good standing. If you don’t already have a PayPal account, you can open one.
Which Items Are Eligible?
You can use the Pay in 4 service on tangible and certain intangible goods and digital services. Certain types of businesses are prohibited from Pay in 4 purchases, including get-rich-quick schemes, nonprofits, and website services.
Can I Pay Off the Loan Early?
Yes, you can pay off your Pay in 4 loan early by simply logging into your PayPal account and paying off the balance.
Alternatives to PayPal’s Pay in 4
PayPal’s Pay in 4 is just one of many BNPL services you can use to spread out the payment for a purchase over time.
One of the more prominent alternatives is a credit card, but unless you have an introductory 0% APR, you might end up with a relatively high interest rate that hits you with interest charges for each month you don’t pay off your purchase.
If you like the concept of Pay in 4 but want to compare similar options, here are some alternatives.
Like Pay in 4, Afterpay allows you to spread out a purchase in four interest-free installments over six weeks. However, Afterpay offers its installment plans for in-store purchases with select merchants in addition to online retailers. Merchants that offer in-store Afterpay purchases include:
- Dick’s Sporting Goods
- Forever 21
That said, Afterpay’s list of participating merchants is nowhere near as long as PayPal’s—just 11,500 brands in the United States. However, Afterpay doesn’t require a credit check.
Klarna works with participating retailers for in-store purchases and allows you to use its app to take advantage of installment payments anywhere online.
You can opt for a no-interest, no-fee six-week installment plan like the ones PayPal and AfterPay offer, or you can apply for financing on larger purchases. Financing repayment extends from six to 36 months with a 19.99% APR.
Klarna’s standard installment program won’t affect your credit, but the financing plans require a hard credit inquiry that will.
Splitit uses the same concept as other BNPL services but with slightly different terms. Instead of four payments over six weeks, the company splits your purchase amount into three payments over two months: one-third on the date of the purchase, another third one month later, and the final third the following month.
The company doesn’t charge interest or late fees. You can use your debit or credit card, but Splitit will place a hold on your account. Here’s how that hold works with a $300 purchase:
- Credit cards: You pay $100 the day of your purchase. Splitit holds $200 on your card as a pending purchase. The hold drops to $100 when you make your next $100 payment, then to $0 when you make your final payment.
- Debit cards: The full amount of the purchase is held for up to five business days after your purchase.
Because of the hold, using Splitit may not be feasible if you don’t have the money in your account to cover the cost of the entire purchase. The retailer directory is somewhat limited, compared with PayPal and Klarna, and its payment programs work only with Visa and Mastercard.
- Pay in 4 allows you to pay off purchases with more than 1 million merchants in four equal installments over six weeks.
- The service doesn’t charge interest, and the only fee is a late-payment fee.
- PayPal may run a soft credit check when you apply, but it won’t affect your credit score.
- Pay in 4 is just one of many BNPL services, so it’s important to compare options before you settle on one.
- BNPL services may be a good alternative to credit cards, because many don’t charge interest.
Frequently Asked Questions (FAQs)
Where can I use PayPal Pay in 4?
If you have a PayPal account, you should be able to use PayPal Pay in 4 anywhere that accepts PayPal payments.
Is Buy Now Pay Later a loan?
A Buy Now, Pay Later, or BNPL, is a type of installment loan. These loans allow you to get approved quickly to make a purchase online, which the lender then pays to the merchant on your behalf. You pay the lender back in installments. BNPL can be helpful if you don't have a credit card, but it can cause problems if you are unable to make your future payments.
Does BNPL help your credit?
Right now, payments that you make on BNPL loans, like PayPal Pay in 4, are not usually included on your credit report. They do not raise your credit score, though missed payments may hurt your credit score. However, BNPL is becoming popular enough that credit bureaus are looking for ways to include that information in credit reports.