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

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.

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.

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. 

While several BNPL companies previously did not conduct credit checks on potential customers; this approach will change in the near future. The recent recognition of BNPL companies as credit providers by the government indicates that the BNPL industry will soon be subject to the same rules and regulations as other credit providers. This means that they will be required to perform hard credit checks on individuals seeking to use their platforms.

When any credit provider runs a credit check on you, it is recorded on your credit report as a hard inquiry. This information can be seen by any lender that checks your credit report in the future.  While a single credit inquiry may not impact your credit score much, 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.