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.
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.