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Paypal hikes interest rates for credit customers

Emma Lunn
Written By:
Emma Lunn
Posted:
Updated:
27/11/2023

Paypal Credit has ditched its lowest APR of 21.9%, with credit users now paying a minimum interest rate of 23.9%.

Money blog DebtCamel says it has received emails from readers who have been told their interest rate – and therefore the minimum payment due each month – will increase from 1 September 2023.

The email warns: “You will pay more each month and the take longer to repay any outstanding balance on your account.”

Paypal has now confirmed the changes being made and who it will affect.

Interest rates

How much rates are hiked by depends on each borrower’s personal circumstances and the rate they are currently paying.

DebtCamel cites the example of an email sent to a customer informing them that their interest rate will rise from 25.9% to 29.9% per annum and explaining that for every £500 borrowed they would pay £1.33 more a month in interest.

A poll run by DebtCamel on Instagram indicated that half of all Paypal users could expect to see their interest rate increase from September.

YourMoney has seen an email sent to one customer whose interest rate will increase from 21.9% to 23.9%. This equates to 69p more interest each month on a £500 debt. The email reminds the customer that this is one month’s interest only – if the debt is not cleared in full each month, the borrower would also pay interest on that interest.

On the email, Paypal said it was making the change due to “an increase in the underlying costs of providing Paypal Credit to customers”, including increases in the costs of servicing Paypal Credit accounts and also the cost of funding.

Minimum payments

A rise in interest rates on a credit card or credit account will impact the minimum repayment due each month. But Paypal is also changing the way it calculates the minimum payments for some borrowers, so borrowers pay even more.

To calculate the minimum payment due, Paypal currently uses the following calculation for most customers:

2% of your balance + the monthly interest and any charges + any monthly instalment payments + arrears.

But for customers paying an APR of 29.9% it uses the following calculation:

2.5% of your balance + the monthly interest and any charges + any monthly instalment payments + arrears.

So, if you have been moved to an APR of 29.9% your minimum repayment calculation will change to the 2.5% figure.

Paypal said: “This helps reduce the risk that the customer would pay more in interest and fees than on repaying their balance, and supports the FCA’s persistent debt initiatives.”

Sara Williams at DebtCamel said: “At a time when everyone’s finances are squeezed, this is bad news. It’s good to pay more than the minimum each month to clear the balance faster, but many people can only afford the minimum at the moment.”

Paypal Credit customers have the right not to accept the changes in their terms and conditions – but they will need to pay off their balance “in a reasonable period” at their current interest rate, then close their account. Anyone wishing to do this should use the “chat” option on the Paypal website or call the company on 0800 3687155 before 1 September 2023.

What does Paypal say?

PayPal Credit said it has different price points depending on a customer’s individual circumstances. These are currently 21.9%, 25.9% and 29.9% (all variable).

But it is raising the lowest rate of interest from 21.9% to 23.9% from September. It has also reviewed its portfolio and amended pricing for some customers. It says: “this may see customers moving between pricing points, based on their profile.”