Paypal’s interest rate increases
Readers have reported getting an email from Paypal in June or July saying their interest rate will be going up a lot.
In the email, Paypal warns:
You will pay more each month and take longer to repay any outstanding balance on your account.
Not good!
A poll I ran on Instagram suggested more than half the Paypal accounts in the UK may be seeing an interest rate increase.
Update: Paypal has explained who is affected
Paypal puts customers into three bands depending on its risk assessment: these used to pay 21.9%, 25.9% and 29.9% interest.
Paypal is now changing the interest rate for the lower group to be 23.9%. The interest rates for the other two groups have remained unchanged.
However some people may be moved from one group to another group. So anyone being moved from the middle-risk group to the higher-risk group will see an increase from 25.9 to 29.9% – which is the example given in the picture above,
A change to the Paypal minimum payments for some customers
If your interest rate goes up, this automatically increases your monthly minimum payment amount. This will affect everyone in the lower-risk group where the interest is being increased.
Paypal sets the minimum payments for people in the higher-risk group at an even higher level. Anyone being moved into this group from the middle group used to pay:
2% of your balance + the monthly interest and any charges + any monthly installment payments + arrears.
The higher group pays:
2.5% of your balance + the monthly interest and any charges + any monthly installment payments + arrears.
That may not look like a lot. But someone with a £1,000 balance who is paying the minimum may face paying an extra £7.50 a month because of being moved into the higher risk group.
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.
You can opt out of these increases!
This is a change to the T&Cs of your account. So the regulator’s rules (CONC 6.7.13.) say Paypal has to allow you to stay on the old terms – interest rate and minimum payment calculation – if you close the account.
You can contact them by chat or phone them on 0800 368 7155.
Paypal does say this in its email – but many people haven’t noticed this or thought that they don’t want to do this as it will hurt their credit score.
But choosing to close your account and carry on paying it off at the old interest rate will NOT hurt your credit score. So this is a sensible option for you to avoid paying the higher interest rate. If you have been wanting to get rid of Paypal for a while this is your opportunity!
Paypal’s email says you have to set up a plan to pay off the balance “over a reasonable period”. This does not have to be a very short period. let me know in the comments below if Paypal is pushing you to pay more than you can afford a month.
Already struggling to pay Paypal?
Here the last thing you need is an interest rate increase and seeing the minimum payments go up.
You can ask Paypal for a payment arrangement, where interest is frozen on your account and you pay a lower monthly amount. because interest is frozen, this means your balance will be dropping every month.
If you have a lot of financial problems, including priority debts such as rent/mortgage, council tax or energy bills, you can even make a token payment of £1 a month.
But with big financial problems, it may be a good idea to talk to a debt adviser about a debt management plan that will cover all your non priority debts, including this Paypal one.
Has your balance got daftly high?
Paypal may have offered you credit limit increases that felt useful at the time. Or you may have asked for a limit increase. But a large balance and a high interest rate can be very hard to clear.
In this case, you may be able to win an affordability complaint and get a refund of some of the interest you have paid. See How to ask for a refund from a credit card or catalogue for details, with a template you can use.
Options when cards are maxed out
Could a Debt Relief order help you?
Can you really offer just £1 to a debt?
David Hunter says
I think that his problem with Paypal applies to people with credit card debt too. It seems certain that credit card companies will use inflation as an excuse to kike already excessive rates of interest and create an ever greater spiral of debt for people who are struggling anyway. There is a case for legislation to limit rates of interest. If the risk of default is very high there is a serious question about why lenders allowed people to accrue unaffordable debt in the first place.
Sara (Debt Camel) says
It certainly does! I have written before on this https://debtcamel.co.uk/interest-rate-rise-credit-card/ but I thought this was worth a new article because many people don’t think of Paypal as a credit card and also Paypal is increasing the minimums at the same time.
Marcin says
My PayPal balance is zero. I did not get the interest hike email/letter.
Sara (Debt Camel) says
My very unscientific poll suggested about 2/3 of accounts have.
Marcin says
Probably they plan to wait for me to get deep into the limit, then will send me a surprise. Luckily, I have no intention/need to get into this path.
james says
Same with me, my current rate is 21.9% with Paypal with no “increase letter” but I pay my Paypal bill by direct debit for the full amount so I am not sure if that makes any difference.
But I have received notices of increased rates from many of my other credit cards, but they are are all on 0% long term deals anyway so no affect.
Peter mcmurray says
Everything going up its greed and our wages or salary only get basic encrease it’s all wrong how are people to live with the cost of living it’s disgracefull brexit a lot to answer for.and this government keeps saying there help there were I not known anyone who gets help
Jon says
The best advise is to dump pay pal & all credit cards as soon as you can,this looks like a return to 2010 when credit cards were handed out like confetti & personal limits were raised to unsustainable limits it’s nothing more than out right corporate greed,Sunak should get his finger out & legislate against this typical greedy banking practice.
Marcin says
Good point. From my sad experience, credit cards with the higher limits are virtually impossible to be paid off. Issuer doesn’t really care about the original limit value, as long as you keep paying interest for years. CCs are also very deceptive: you think you owe 5000, but in fact, if you just pay minimum + a little bit, your real debt value is more like 12000. You just do not see the true number, until you for example get a consolidation loan, with the upfront listed all fees.
Natasha says
I previously had this email last year and then had an email from them roughly a month or so later saying that they changed their minds and would be returning me to the previous terms. PayPal seem very difficult to deal with I tried to do an affordability complaint they have been giving me the run around sending me a message saying they trust I’m happy with the decision but if I’m not I can complain to Commission de Surveillance du Secteur Financier (CSSF), free of charge – but you must do so within one year of the date you first complained to PayPal. Which confused me as they hadn’t sent me a decision They then sent me a message saying they were sorry that they hadn’t responded in the timeframe given but had escalated it and I should expect a response in three weeks that was two weeks ago so I’m still waiting it’s been two months in total I’m not sure if I can complain to the ombudsman here if I have to go to the one they mentioned.
Sara (Debt Camel) says
Yes they can be difficult.
How long ago did you make this complaint?
Natasha says
I originally sent the complaint on 1st of may. They then tried to claim I could only complain via phone not email or chat after they had told me I could complain via chat. I told them that I have difficulty communicating over the phone and they then seemed to accept that the matter had to be dealt with via messages but I don’t really know how much I trust that it is actually being looked as the responses seem designed to bamboozle me what with saying we trust your satisfied and then sending three messages saying it’s being escalated and sorry for the delay.
Sara (Debt Camel) says
Ok well give them 2 weeks more then send this case to the Financial Ombudsman. And make a point of telling FOS how difficult Payplan make it to complain.
Ose says
Mine went down:
Your standard variable rate of interest will go down from 25.9% p.a. to 23.9% p.a. As a result, your APR will also go down to 23.9% APR (variable).
Jon says
Absolutely right.
John Williams says
Or you can ask for a ‘do not pursue’
Sara (Debt Camel) says
Who are you replying to?
Laura says
I’ve had an influx of CCJs suddenly from debts over 6 years old what are my rights ?
Sara (Debt Camel) says
Actual CCJs. Or threats of one, claims forms from the court?
How long is it since you made any payments to these debts? Have you been ignoring letters from debt collectors?
Laura says
Paypal have suddenly closed my account permanently without notice. It has a £198 payment which they have said they’re going to hold for 180 days as I’m a “risk” but won’t elaborate. No dodgey transactions or anything.
I cannot wait 6 months for this money, it was for a car repair. What are my rights? :(
Sara (Debt Camel) says
I think you should complain if you think you have been unfairly treated. Go to your local Citizens Advice if you need help with this.
Aidan says
PayPal withdrew from FCA Voluntary Jurisdiction per my financial ombudsman claim so couldn’t look at my claim from 2018. They could only look at the part from 2021 when they temporarily joined. I believe PayPal are applying to join FCA by Nov 2023. If they do rejoin would the ombudsman be able to review my claims to 2018?
Sara (Debt Camel) says
I don’t know. You could ask the Ombudsman?
CM says
Hi Aidan,
Did you take this to the Ombudsman as I have experienced exactly the same with my complaint?
Lisa says
Sara would you be able to assist me on a PayPal affordability claim please? I have waited 6 months for the ombudsman to pick up the complaint. Provided everything they asked for & they are now saying they can’t deal with it.
I’d like to send you what they’ve written but I’m never sure where to comment a question.
Can I add it here?
Sara (Debt Camel) says
The comment just above this one has had the same problem. And another person has also reported this.
Lisa says
Yes, I didn’t see that. It is the same problem. I will ask that question. The problem I’ve got is that I don’t really understand what they have written.
On one hand they say they can’t deal with it, then on the other it reads:
Next steps
If you don’t accept what I’ve said, then please let me know by 25 September 2023. If I can’t resolve things then an Ombudsman here can look at everything again and make a decision. If I don’t hear from you by that date we might not be able to look at your complaint again.
I’m confused.
Sara (Debt Camel) says
The Ombudsman is a two stage system. 90% of cases are settled at the first “adjudicator” stage. But it is everyone’s right o ask a moire senior person, an Ombudsman, to look at you case if you disagree with the decision. So all adjudicators tell you this – it doesn’t mean that they are unsure they made the right decision.
Lisa says
Hi Sara, me again.
The FOA has advised that I send my complaint to CSSF who may be able to help me they are an authority in Luxembourg, where PayPal originally traded from.
Have you heard any positive stories about them, and do you have any templates I can use in my correspondence with them?
Thank you
Lisa
Sara (Debt Camel) says
No stories at all, positive or negative.
I suggest you use the template from my page but add some more details. About the problems the PayPal credit caused you and about how if they had considered your situation (what else was on your credit record? Had you only been making the minimum payments) they would have known a higher limit would not be manageable for you.
CM says
Did you take this to the CSFF as I have experienced exactly the same with my complaint?
Lisa says
Hi CM, I’m so sorry I didn’t see this. I did complain to the CSSF. They asked me to write to the a certain person at PayPal (they gave me the name), they wanted me to try one more time and give them a month to respond.
I did this and they have acknowledged it, and the month runs out in a couple of weeks.
I will let you know the outcome if you still need?
Lisa
JB says
Hi Sara,
I have had an affordability complaint rejected by Paypal credit – I have read the comments above, but noticed that Paypal are moving their business to Paypal UK Ltd as of 1st Nov. Given they’ll then be a UK company, is it best to wait to submit a FOS complaint until that has happened or because they were based on Luxembourg when the lending was offered, will it make no difference?
Thank you
Sara (Debt Camel) says
Complain now – there is no advantage to delaying.
JB says
Thanks for the advice Sara. I have just had an affordability complaint upheld by the FOS and an £1100 interest refund.
They were only able to go back as far as January 2021 due to Brexit, so I will now send a similar complaint to the CSSF and see if I make any progress there.
JB says
Hey Sara,
Just to update you on this as it looks like a few others may be in the same boat and there is very little info on the CSSF.
Firstly, the CSSF require you to have complained to the complaints director, Fabrice Borsello via CRC@paypal.com (perhaps one to add to your list) before they will consider your complaint.
I did this and got a response on the final day of the month they are permitted to take, which was the same result as I’d had previously, so the CSSF are now investigating further.
Because the FOS had looked into my complaint from Jan 2021, the CSSF have said they can only look into my complaint from when my account was opened in 2015 until December 2020.
They seem to respond much more quickly than the FOS (as I’d imagine their workload is much lighter) so I’ll keep you posted with progress.
Sara (Debt Camel) says
thank you
C says
Hi Sara
I have a paypal credit balance of £3000 and all of a sudden having big payments coming out monthly (minimum of £300 coming out in random parts of the month) this has now become unaffordable and is leaving me with a minimal amount remaining every month. We are planning on buying a house next year, i am worried if i submit an affordability complaint and its rejected that it will effect my credit and then effect my eligibility for a mortgage, do you know if this is a possibility?
thanks
ciara
Sara (Debt Camel) says
That seems a large amount – what do your statements say? Have you bought any “pay in 3” as the payments for those are large.
Sara (Debt Camel) says
also what other debts do you have, as even debts with no problems on your credit record will reduce what a mortgage lender will lend you. See https://www.santander.co.uk/personal/mortgages/mortgage-calculators/how-much-could-i-borrow and on that calculator treat Paypal and any catalogues as a credit card.
Lisa says
Hi Sara,
I am still waiting for CSSF to do something about my affordability claim with PayPal. They are helping to get answers from PayPal, it’s a long drawn out process, but it seems that even if they do they are not about to enforce anything like the FOS. So I feel it’s a wasted cause.
So when I got this interest increase email I called PayPal. I asked them to keep me on the old interest rate. I said this over and over, but the guy I spoke to said he will put me on a payment plan instead, that way they can freeze the interest. I did keep asking if this would affect my credit rating and he said no, but at the bottom of an old email I got it said if they put me on a payment plan it will go on my credit record (or words to that affect). I don’t know what to do now. I’ve worked really hard to get my rating up. Can I ask them to put in writing it won’t affect my rating? Or should I just push staying on the old interest rate. It’s like they don’t hear what I’m saying when I ask this, and just say no this is the only way they can help me.
Many thanks
Sara (Debt Camel) says
what is the rest of your financial situation like? what is your credit score?
because getting interest frozen is often the only practical way people have of clearing these expensive debts.
Lisa says
My credit score is in excellent now on Experian. That’s what I mean, I’ve been working on it, so I don’t want to affect it by going on a payment plan. I just want to stay in the current interest rate. But they don’t seem to get that’s what I’m asking for.
Sara (Debt Camel) says
did their email/letter to you say you could reject the increase and stay on the old rate?
Lisa says
No. The letter/ email was a response to the original affordability claim. They said they couldn’t uphold it but said if I was in financial difficulty they could put me on a payment plan, & then about the fact they would have to report it. So that actual email had nothing to do with this current offer to put me on a payment plan.
This current offer was just a conversation on the phone with an advisor, & when asked he said no it wouldn’t affect my credit rating.
I had to do a form asking about my outgoings. I did that & then they said to call them back. I haven’t called them yet as I’m worried that he wasn’t giving me the right advice about it affecting my score. I just really don’t want to agree to something that might harm my score.
Lisa says
I’ve just realised what you meant. You meant the recent email that said I would start paying compound interest from July.
This is all they said at the end:
If you are worried about your financial situation
If you have any questions or are concerned the change could have a negative impact on your current financial situation (for example, the repayments will no longer be affordable) then please contact us on 020 3467 3209 and we will work to support you.
Sara (Debt Camel) says
so tell me exactly what this recent email about “compound interest” was about? And what you mean be “staying on the old rate”?
Lisa says
It’s a long email. I’ve tried to put the basics without showing my personal amounts. They wrote:
From 1st May 2022, we moved from charging simple interest to compound interest on your PayPal Credit account. We explained this in March 2022 and a follow-up email in May 2022. Charging compound interest means charging interest on interest.
When we made this change, we became aware that the minimum payment due for some customers had increased by more than they may have expected. As a result, we decided that at the time:
• we would not charge interest on any interest which was part of your balance before 1 May 2022; and
• we would only charge interest on new interest accrued from 1 May 2022 onwards.
This means that part of your outstanding balance is currently not being charged interest. We communicated this to you in August 2022.
We will start charging interest on this balance from 1 July 2024. We will charge interest at your standard variable rate of 25.90%.
What does this mean for you?
Your monthly payment due will increase.
Applying compound interest means that we charge interest on interest as well as on the outstanding amount if you do not pay off your balance in full every month.
I thought this was the increase you spoke about in your article, & is why I asked to stay on the current interest rate. Have I got this completely wrong?
P.s hope this makes some sort of sense?
Sara (Debt Camel) says
it makes sense, I have just not heard of this simple => compound switch happening before.
Do you know if they gave you the option to stay on the old methis in March 2022?
Lisa says
I don’t even remember reading the email, but I’ve just gone into my old email & found it. It says:
The existing terms include a right for us to charge interest on interest (known as compound interest) if the outstanding balance is not paid in full each month (see clause 4.6). To date compound interest has not been charged, but we will start to do this from 1st May 2022. Any promotional balances on your account (such as any 0% or instalment offers you may have) will be unaffected.
During any period in which interest is not being charged (for example, if you are experiencing financial difficulties and we have agreed to enter into an interest-free period) then this change will not impact you.
If you have any questions or are concerned the change could have a negative impact on your current financial situation (for example, the repayments will no longer be affordable) then please contact us via CHAT by logging in here and selecting new message, or call us on 0800 368 7155 and we will endeavour to support you.
No mention of opting out
Sara (Debt Camel) says
OK so they haven’t actually changed the T&Cs, they always had the right to do this but previously they didn’t.
If they had changed the T&Cs, they have to give you right to opt out and remain on the old ones. They aren’t offering you this option as technically they don’t have to as the T&Cs remain the same.
I am afraid I don’t hold out much hope of you challenging this. And I would be surprised if you get any joy out of your CSSF complaint. I am afraid your options are a payment plan that will harm your credit score or repaying the debt as fast as possible and closing the account.
Lisa says
Never mind. I appreciate your help though. As always.
I did find an older email from 2022 that said I could opt out of the new changes relating to this, but it said I only had a certain amount of time to do this, & that time has passed.
I may call them and say that the advisor told me it would not affect my credit rating and that they should listen back to the call. I’m hoping that way they may have to honour it. Maybe wishful thinking but I’ll try.
Thanks again.
Lisa