Sam
7
All posts from Sam
Sam in Stack That Money,

​Getting Credit through PayPal

Guest Post by Linda

Getting Credit through PayPal

These days, everyone has a PayPal account. It’s such an easy way to make purchases on the web or to send money to family and friends quickly. But did you know that when you open a PayPal account, you will probably, eventually, be offered something called PayPal Credit through a program they have called Smart Connect?

Going in with Your Eyes Wide Open

So, you get excited when you first open your new PayPal account and you think, oh, boy, this is sure going to be convenient, and all of a sudden, out of seemingly nowhere, PayPal is trying to lure you in—here, my pretty little one, come buy this delicious lollipop with this $300 line of credit, says the devious PayPal creditor with an evil laugh! And you think, hey, that’s $300 of buying power that I didn’t have yesterday! What can happen? And you fall for it, hook, line and sinker.

How PayPal Credit Works

This PayPal credit account operates just like a credit card account, except for the fact that you don’t get a credit card to carry around with you. Formerly, your ability to pay for purchases or send money from your line of credit to a person you know was limited to what you could do online—and the other end had to sign up for a PayPal account, too. Well, now that PayPal has apps you can download and brick-and-mortar shops can take PayPal, you have even more ways to be tempted to use your PayPal line of credit—right from your smart phone. Of course, PayPal explains to you that all your in-person and online purchases will go much faster if you set your “preferred payment method” to your PayPal line of credit.

As usual, in order to receive the offer of a PayPal line of credit, you need to have established some kind of average, good, or excellent credit rating, just like every other line of credit you apply for. But once you are accepted, then you manage your credit line right through your PayPal account. They will send your statements via email and then, once you link your checking or savings account to your PayPal account, you can make your monthly payment from your PayPal balance or your checking or savings through your regular PayPal account.

The Catch

Here’s the catch. A lot of people get sucked in with some kind of special offer that promised an APR of “only” 19.99% for a limited period of time. And this is consider great by Synchrony Bank, the bank with whom you are working when you get a PayPal line of credit. My friend, Paul, actually let me look at his PayPal credit account, and his current Annual Percentage Rate is a whopping 26.99%. And because Paul pays on time every month, PayPal Smart Connect gradually raised his credit limit to $1900, up from the original seemingly-safe limit of $300.

Well, I’m sure you can see where this is going. Paul maxed out his line of credit and now his minimum monthly payment is $63. But the most astonishing thing is that of that $63, fully $43.64 is going to pay the interest! This is such a trap! If Paul made no further charges and paid only the minimum payment every month, which does go down as the balance goes down, Paul would end up needing 11 years to pay off his $1900 line of credit, and, what’s worse is that during that 11 years, he would have paid a grand total of $4831. Now, if he stopped using the account altogether and charged nothing more, and he established a monthly payment of $77, it would take him only 3 years to pay off the $1900, and the total amount he would have paid back would be $2789, saving him $2042.

The Moral of the Story

So, my friends, when Synchrony Bank, in the guise of PayPal Smart Connect comes knocking at your door offering a line of credit all wrapped in shiny paper with a pretty bow, slam the door in their faces!