Online shopping and “buy now, pay later” are becoming more entrenched in American consumer culture.
PayPal has moved to establish itself as a major player on both fronts. It launched “Pay in 4” last year as an answer to several large “buy now, pay later” (BNPL) companies and as an extension of its primary payment service.
In this article, I’ll explain how Pay in 4 works, how much money you can borrow through the service and whether Pay in 4 charges fees if you miss payments and more.
Table of Contents
- What Is PayPal’s Pay in 4?
- How Does Pay in 4 Work?
- My Experience With Pay in 4
- Pay in 4 Review: What Happens if You Miss a Payment?
- How Does Pay in 4 Determine Your Spending Limits?
- Pay in 4 Pros
- Pay in 4 Cons
- Alternatives to Pay in 4
Pay in 4: Quick Look
|Pay in 4 at a Glance|
|Term Length||45 days|
|Late Fees||None as of Oct. 1, 2021*|
|Credit Bureau?||Can report late payments|
What Is PayPal’s Pay in 4?
PayPal launched Pay in 4 in 2020.
It replaced the platform’s Easy Payments program, which was essentially a “buy now, pay later” program, albeit with different parameters. This new iteration is more in line with PayPal’s competition in the BNPL space.
PayPal co-founder Max Levchin is also co-founder and CEO of Affirm, a major BNPL competitor.
Pay in 4 launched in the fall of 2020. It offers zero-interest loans between $30 and $1,500. PayPal claims that Pay in 4 works with “millions” of online merchants. That’s many times more than the other “buy now, pay later” services I’ve reviewed.
Some of the brand partners include:
- Bed, Bath & Beyond
- Best Buy
- Camping World
- Estee Lauder
- Lands’ End
- Omaha Steaks
- Vineyard Vines
PayPal also operates Pay in 3, a similar program based in the United Kingdom.
How Does Pay in 4 Work?
Not everyone is eligible to use Pay in 4. The program excludes the following states:
- New Mexico
- North Dakota
- Rhode Island
- South Dakota
You also must be at least 18 years old to use Pay in 4 in the other states (19 in Alabama and Nebraska).
Like many “buy now, pay later” companies, Pay in 4 splits your loan amount into four equal installments.
You’ll need to pay the first installment, or a down payment, immediately. The other three payments are due every 15 days. So you’ll need to pay off your debt completely within 45 days.
Step-By-Step: How To Use Pay in 4
Here are the steps you’ll follow:
- Create a PayPal account. If you already have an account, it must be in good standing.
- Select PayPal on a merchant’s checkout page. Place an item in your cart and indicate you’re ready to pay via PayPal.
- Click “Pay Later” and choose “Pay in 4.” The service will grant you a near-instant decision after running a soft credit check. The soft check won’t impact your credit score. If your request is declined, you’ll get an email with an explanation. You’ll still be able to complete your transaction with PayPal, though.
- Make your initial down payment. You’ll pay for 25% of the item upfront before the merchant processes your order.
You’ll be able to make the additional three payments via the PayPal app (Android and iOS) or via PayPal.com.
Your subsequent payments take place automatically via the payment method you stipulate during your Pay in 4 application. You can change your payment information later if you want to.
You can’t use a PayPal balance to make Pay in 4 payments. Also, Capital One, American Express and Chase credit cards don’t allow “buy now, pay later” transactions.
Typically, BNPL companies charge merchants between 3 and 6%. That’s how BNPL companies make the majority of their money.
However, according to TechCrunch, PayPal already charges merchants a fee to handle any type of payment through its platform. Most “buy now, pay later” services get merchants to agree to pay significant surcharges. But PayPal doesn’t require additional fees for Pay in 4 beyond what it already charges for transactions.
My Experience With Pay in 4
I personally tested three other BNPL services in addition to my attempt to use Pay in 4.
I use “attempt” because I was never able to find an item I wanted to buy via Pay in 4.
PayPal claims that its BNPL option works with “millions” of retailers. But unlike the other BNPL operations, there’s no sortable online database of partner merchants on the PayPal website. There’s only a scant list of some of its largest brand partners.
Also, when you reach the checkout page of an online merchant, BNPL companies typically display prominently. Some even include language that indicates you’ll pay in four separate installments.
However, PayPal’s Pay in 4 is much less conspicuous. It’s as if you need to be seeking it in order to use it. The only thing that displays on the checkout page is “PayPal.” You have to select PayPal and then manually choose “Pay in 4” as an option.
I tried more than a half-dozen major brands, selecting the PayPal option at checkout, only to find that Pay in 4 wasn’t an available option. Eventually, I tried to buy from some of the partner brands that other Pay in 4 reviews cited.
When that didn’t work either, I shopped directly from the short list on PayPal’s website. I tried to purchase something but ran into the same issue at checkout: I could buy with PayPal (via upfront payment or through a separate credit option) but not with Pay in 4.
So I put some items in my cart I didn’t actually want. I was able to confirm Pay in 4 as an option for those brands but did not go through with purchasing those items.
Pay in 4 Review: What Happens if You Miss a Payment?
Typically, your biggest risk with a “buy now, pay later” company is missing a payment and wrecking your credit.
A Credit Karma report from February 2021 found that 42% of Americans have financed something through a BNPL company. Among those people, 38% missed at least one payment and 27% reported a credit score drop.
As I mentioned, the good news is that Pay in 4 payments process automatically. But if your automatic payment fails, you’re taking a risk. You can get banned from Pay in 4. PayPal may even report your missed payment to the credit bureaus, which could lower your credit score.
PayPal says that the state you live in determines your late fee and grace period. You may receive an automated phone call notifying you of a past-due balance.
According to Investopedia, PayPal was going to remove all late payment fees on Oct. 1, 2021. According to the report, PayPal was making this change to compete with Affirm, which doesn’t charge late fees. But as of this writing, the site’s FAQ page still says, “… if you are late with a payment you may be charged a late fee.”
You’re allowed to make unscheduled or extra payments on any purchase you’ve financed through Pay in 4. You can also pay off your balance all at once.
To view and monitor your payments, log into your PayPal account, click “Pay in 4” and click on the specific Pay in 4 transaction you want to check. You’ll see the amount you still owe under “Remaining.” You can also look at “See Upcoming Payments” to check the dates.
How Does Pay in 4 Determine Your Spending Limits?
PayPal runs a soft pull on your credit to check your score.
The Pay in 4 website doesn’t provide further details about how it determines whether to approve your request. However, merchants sometimes set their own spending limits for BNPL purchases.
“Buy now, pay later” companies typically consider whether you’ve taken out a point-of-sale loan with them previously and whether you have a history of making your payments on time.
Some BNPL companies won’t offer you their maximum amount of credit on your first application but will increase your limit when you show a positive payment history.
Pay in 4 Pros
Here are some of the company’s positive attributes:
- Zero interest. Pay in 4 doesn’t charge interest on its point-of-sale loans.
- Late fees going away — maybe. As I mentioned, PayPal was reportedly abolishing late fees starting Oct. 1, thanks to pressure from competitors. But as of this writing, there’s still verbiage about late fees on the site.
- No additional cost to merchants. Most BNPL companies charge a fee to the merchants with which they work. PayPal doesn’t, which may explain why it boasts “millions” of retail partners.
- Automated payments. This is somewhat of a rarity within the BNPL space. It probably reduces the chance that’s you’ll miss a payment.
Pay in 4 Cons
Here are some of the company’s negative attributes:
- Risk of hurting your credit score. If you fail to make a payment on time, PayPal could report it to the credit bureaus. This could potentially lower your credit score and show up as a negative event on your credit report for years to come.
- False sense of security. It’s possible to miss payments even if they’re automated. Perhaps your balance is too low at the time the payment processes. Or maybe you lose the card you have on file and cancel it prior to the payment date.
- Much lower limits than big competitor. Affirm, which shares a co-founder with PayPal and is a major competitor, offers installment loans of up to $17,500. PayPal’s BNPL product tops out at $1,500.
- Can encourage excess spending. It may be easier to spend money if it doesn’t come out of your bank account right away.
Alternatives To Pay in 4
The best “buy now, pay later” alternative is to pay for whatever you’re using with actual money rather than financing it.
If you’re going to borrow to buy something, a credit card is another option. Of course, money expert Clark Howard strongly recommends that you pay off your balance by the end of your monthly billing cycle. And if you pick the right credit card, you can earn rewards.
Some of Pay in 4’s biggest competitors include:
- American Express
PayPal’s entry into the “buy now, pay later” space is getting stronger.
Pay in 4 charges 0% interest. It claims to work with millions of merchants, far more than the other services I’ve reviewed. It also offers automated payments, which is atypical of the BNPL space.
However, you can still ruin your credit by missing a payment. And the service can also tempt you into spending more money than you otherwise would.
Because you’ll have to pay back the full amount within 45 days, it’s important to weigh the potential consequence of harming your credit against the advantage of being able to pay over the course of a few weeks.