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Updated on Wednesday, April 17, 2019
We’ve all been there. You need cash but your bank account is running low, so you take a cash advance from your credit card. Handled carefully, it can be a useful way to get through a rough patch in your financial life.
PayPal offers a digital credit line that includes a cash advance option, PayPal Credit, formerly known as “Bill Me Later.” This service allows users to send money to friends and family, buy things online, and stretch payments over time.
However, there’s a very important caveat with PayPal Credit’s cash advance feature: You cannot take out cash for yourself or advance money to your own account; you can only send money to friends and family. This is very different than the credit card cash advance features you may already be familiar with.
Is PayPal Credit cash advance a smart way to send money to friends and family? It really depends on your circumstances: PayPal Credit cash advance carries a relatively high APR, but it also offer a grace period for repayment, unlike credit card cash advances.
What is a PayPal Credit cash advance?
Issued by Synchrony Bank, PayPal Credit is a virtual line of credit that lets users make online purchases or send money to others. Keep in mind that PayPal Credit is different from a PayPal debit card or a PayPal credit card.
Applying is easy: Go to the PayPal Credit website, enter your date of birth, income after taxes, and the last four digits of your Social Security number. Once approved, you are issued at least $250 worth of credit. Approved users then get PayPal Credit as an option when they check out from online retailers who accept PayPal for payment.
For some online purchases of $99 or more, you have six months to pay off your PayPal Credit debt in full without accruing interest. If the balance is not paid in full within six months, interest will be charged to your account from the date you made the purchase, and interest will continue to be charged until the balance is paid off in full.
For PayPal Credit cash advances that are sent to friends and family, you have to pay off your balance in full each month by the payment due date to avoid interest charges. This is one of the biggest advantages of a PayPal Credit cash advance: Interest is deferred to the end of the monthly payment period. With credit card cash advances, generally interest begins accruing immediately, without any grace period.
Paypal Credit offers a single 26.24% APR for cash advances and regular purchases.
Pros and cons of Paypal Credit cash advance
There are advantages and disadvantages to PayPal Credit’s cash advance service, when compared to credit card cash advances.
Advantages of Paypal Credit cash advance
- There is a grace period for interest charges: PayPal will not charge interest on cash advances or other transactions if you pay your debt in full by the monthly payment due date. The grace period goes up to 25 days. This is a better deal than credit cards, which generally begin charging interest as soon as you take out the cash advance.
- The fee is not as high as credit card advances: When you use PayPal Credit to send money to friends and family, PayPal charges a 2.9% flat fee, plus $.30 per transaction. This is the same fee you pay when you use to send money through PayPal from your own debit or credit card. This fee is lower than what most credit card issuers charge for cash advances: typically 3% to 5% of the amount advanced, plus a $2 to $5 fee if you use an out-of-network ATM to withdraw the cash.
Disadvantages of Paypal Credit cash advance
- You cannot advance money for yourself: PayPal Credit’s cash advance feature allows users to send money to friends or family; you cannot use this feature to send funds to yourself. When you advance cash on your credit card, you get money yourself and can use it immediately.
- High APR: The average APR for credit cards is 86%. For regular credit cards, the APR you are charged for a cash advance is often 5% higher than the APR for a standard purchase. Adding the 5% additional APR for cash advances, it’s 21.86%, still 4 percentage points lower than the APR for a cash advance with PayPal Credit. you can probably get a better APR with a credit card, especially if you have good credit.
Alternatives to PayPal Credit cash advance
PayPal Credit may seem a good option when you need to send cash in a pinch. But whether it’s the best choice for you really depends on how much time you’ll take to pay it off. Here are some alternative options.
- Borrow from friends and family. Borrowing cash from family and friends often comes with no interest rates or fees, making it much less expensive than a cash advance.
- Use your credit card. If you need to buy things, use your credit card to pay for the purchases, if it has a lower APR. Even better, consider getting a credit card with no cash advance fee.
- Transfer a balance to a credit card that offers an initial 0% APR. Consider getting a credit card with a 0% APR intro period and transferring to it the balance from a credit card cash advance. You will have already paid the cash advance fee on one card, and may still have to pay a balance transfer fee, but even together this figure may be lower than the cash advance APR. Plus, you’ll be buying time to pay off the balance.
The bottom line
If you don’t have cash available in your virtual wallets or debit cards, PayPal Credit can be a convenient way to get cash fast to your friends and family, but it comes with fees and doesn’t allow you to advance cash to yourself. You’ll also need to be careful and make sure pay off your balance on time to avoid a hefty interest charge.