Is PayPal's 'Buy Now Pay Later' Installment Plan Worth It?


Illustration for article titled Is PayPal's 'Buy Now Pay Later' Installment Plan Worth It?
Photo: Tero Vesalainen (Shutterstock)

With the boom of Buy Now Pay Later (BNPL) retail financing, the preference for no-interest installment plans has prompted popular payment apps like PayPal to launch their own versions. If you’re a regular user of PayPal who’s new to this form of payment, here’s a look at how it works and how to set it up.

What is BNPL?

BNPL is a short-term financing tool that let’s you pay for medium-sized purchases (usually $50-$600) in monthly installments, with no interest charged. They’ve become a regular fixture on the checkout pages of big retail sites like Urban Outfitters and Sephora, and proved to be popular since the start of the pandemic, as the percentage of people that have used BNPL has jumped 18% since last July, according to a recent Ascent survey.

The purchases are paid as installments spread out over a few months, with no interest charged. BNPL is sometimes called “digital layaway,” although unlike actual layaway programs, you get the product right away. Part of BNPL’s appeal is that you don’t need a good credit score to qualify for this form of credit.

If there’s no interest, what’s the downside to BNPL?

BNPL doesn’t charge ongoing interest like a credit card, but it does charge you late penalties ($10-15) and transaction fees (4-6%) that can damage your credit score. And this is where the small print matters—while BNPL companies don’t charge you interest at first, some of them will begin doing once you get behind on your payments (PayPal does not).

All this to say: If you’re prone to overspend or don’t have a realistic plan to pay for purchases, then you’ll probably want to stay away from BNPL and stick to debit.

How to use PayPal’s “Pay in 4”

Pay in 4 is simple to use if you know where to find it. When you’re at a retail site’s checkout page, look for the usual PayPal button as a payment option (there might be a “Pay Later” button, as well—both work). Provided that you already have a PayPal account that’s linked to a debit or credit card, toggling that button will take you to a payment screen. You might have to scroll down, but you should see a “Pay Later” that includes “Pay in 4.”

At that point, PayPal will have run a soft credit check (which doesn’t hurt your credit score) and you will either be approved or denied for the transaction. If you’re approved, then a payment summary will appear (“four interest-free payments of $31.25 due every two weeks, starting today”) which you can accept by toggling the option and then selecting “continue” at the bottom of the screen.

If you’re using a debit card, these funds will drawn automatically when they’re due (although be careful with overdraft fees). If your PayPal is linked to a credit card, set up automatic payments immediately after you buy anything on an installment plan (in case you forget to do so later).