Financial expert warns against PayPal’s installment payments


PayPal has become a popular online payment option. According to the study “E-Commerce-Markt Deutschland 2018”, 52 percent of consumers who order online paid for their purchase with PayPal in the past year. No wonder: Paypal payments are paid immediately to the seller and the money is later withdrawn from the buyer’s account or credit card by the payment service provider. This speeds up the shipping process and the goods arrive at their destination faster.

You do not need to pass on your bank details to a shop. Money to friends and acquaintances can also be transferred quickly and easily via PayPal. Only the email address registered with PayPal is sufficient for this. Now PayPal is expanding its offer and expanding its business with installment payments in Germany. In the future, the option should generally be available when paying via PayPal, previously it was offered selectively by the retailer. The financier is PayPal itself, the creditworthiness check is carried out online, the merchant receives his money immediately.

PayPal: Installment payments at 9.99 percent APR

Payment by installment from PayPal is offered for purchases between EUR 199 and EUR 5,000. The term is 12 months and the installments are collected by PayPal directly from the customer’s account. But there is a catch with the offer – namely the interest rate. The effective annual interest rate is 9.99 percent. “That is damn expensive, especially in the current interest rate environment,” says Thomas Mai, financial expert at the consumer center in Bremen, in an interview with “Customers should avoid this offer.”

Mai is alluding to the fact that there is currently no credit interest on their savings for savers, but that the interest on credit is at a very low level. But PayPal is betting that users accept a possibly higher interest rate than elsewhere for the quick availability of the installment payment. A search on online comparison portals reveals many offers that require significantly lower interest rates for a loan of 5,000 euros.

Expert: Customers should “only use PayPal in an emergency”

However, the application process takes longer and involves more effort. Nevertheless, expert Mai advises consumers to use the PayPal offer “only in an emergency” and to see it as “an overdraft facility to bridge a short financial bottleneck”.

Read also: The Swedish payment provider Klarna does a lot better than PayPal

“With this offer for payment in installments, some target groups can quickly snap into a debt trap,” said the consumer advocate. If, for example, the overdraft facility on the bank account is already exhausted and you buy a product in installments at the high interest rate, consumers could quickly lose track of the actual interest charges, he warns.

Compared to the PayPal offer is worthwhile for consumers

In general, when paying in installments, it is particularly important to consider whether you actually need the desired product. Because buying for several months is often tempting and tends to lead to purchasing items that you cannot even afford. “Some consumers lose track of their finances when paying by credit card or buying in installments. This is especially true if you buy several products in installments, ”warns Thomas Mai.

Should you still want to buy items and pay for them over several months, a comparison to the PayPal offer is almost always worthwhile. Many retailers repeatedly advertise zero percent financing for goods, which is a great saving for a product worth 5,000 euros in contrast to 9.99 percent interest. However, even with zero-interest financing, some consumers could overtax themselves because of the small-looking installments.

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