To expand its payment options beyond buy now, pay later (BNPL), PayPal has introduced a service it calls PayPal Pay Monthly that allows consumers to spread payments over longer periods.
It also allows users to finance larger purchases. A typical BNPL purchase is broken up into four equal payments that are made every two weeks. Pay Monthly will allow consumers to make purchases of between $199 and $10,000 and make payments for up to 24 months.
After a customer selects Pay Monthly in the PayPal app, they will complete an application at checkout and, if approved, will be presented with up to three different plans of varying lengths. Depending on their credit standing, consumers will be offered an interest rate between 0% to 29.99%.
Similar to a personal loan
PayPal said it is responding to the growing demand for more flexible payment options. Annie Millerbernd, a personal loan expert at NerdWallet, says the new product is actually a personal loan.
“No matter how you brand it, borrowing money and repaying it in monthly installments, plus interest is a loan,” Millerbernd told ConsumerAffairs.
But she notes Pay Monthly is a little different than a typical personal loan. The amount that consumers can borrow is smaller, and the repayment terms are shorter.
“It’s not surprising that PayPal would want to offer longer-term, interest-generating loans, because the buy now, pay later industry has had a tough few months,” Millerbernd said. “With reports of revenue struggles at some companies and regulators watching the industry, not to mention Apple’s pay later product announcement, it can’t hurt to diversify.”
Popular during the pandemic
BNPL plans grew in popularity during the early days of the pandemic and are now offered by a wide range of fintech apps. But there have also been problems with some consumers getting overextended.
Last September, Credit Karma released research showing that 44% of Americans had used a BNPL plan. Of those consumers, 34% said they have fallen behind on payments.
PayPal Pay Monthly may offer consumers more flexibility, but like any loan product, it should be used carefully. Before choosing it, Millerbernd said consumers should compare options, including the option to pay out-of-pocket instead of borrowing the money.