Paypal Pay in 3 guide

Over 40% of UK adults have used Buy Now, Pay Later (BNPL) services, signalling a dramatic shift in how we manage our purchases.

Typically I’ve avoided BNPL, but PayPal’s Pay in 3 was offered on a recent purchase, and thought now would be an excellent time to try it out.

While traditional credit cards charge up to 24.9% APR, PayPal’s interest-free instalment service lets you split payments across three months with zero additional costs, and is available at major retailers like ASOS, Boots, and M&S. 

In this article I’m going to cover what exactly Pay in 3 is, how it works, and how you can use it, and what to be aware of.

What is PayPal’s ‘Pay in 3’

Pay in 3 splits purchases into three equal interest-free instalments over two months, with the first payment due at checkout. Launched in October 2020 for UK customers, this payment option works with purchases between £30 and £2,000 at thousands of online retailers across the UK.

While similar to offerings from Klarna and ClearPay, PayPal’s service runs credit checks through external agencies without affecting credit scores. The automated approval process gives instant decisions at checkout, with subsequent payments automatically deducted monthly on the same date.

PayPal joined this market to stay competitive as shoppers increasingly choose instalment payments over traditional methods.

How PayPal’s ‘Pay in 3’ Works

PayPal assesses eligibility through automated checks when you attempt to use Pay in 3 at checkout. If approved, you make your first payment immediately, followed by two equal monthly instalments on the same date. For example, a £300 purchase on 10 March would require three £100 payments.

The first payment on 10 march, the second on 10 April, and the final payment on 10 May. Simple. In the image below, you’ll see a small test I did with a £30 purchase from AliExpress. Yes, I know AliExpress, but nowhere else sold the parts I needed.

Unlike when using credit cards, there’s no interest or fees from PayPal, or late payments, though your bank might charge for failed payments.

Online stores receive full payment upfront from PayPal, while you repay PayPal directly. The payment option appears automatically for qualifying purchases between £30 and £2,000.

To get Pay in 3 you must have a PayPal account in good standing, and approval depends on factors like account history and automated soft credit checks. Payment schedules cannot be paused or modified once established.

Benefits of Using Pay in 3

I’ve always avoided BNPL schemes. Monzo’s Flex almost swayed me, but in the end I just used my credit card.

Pay in 3 offers financial flexibility by letting you manage larger purchases through smaller payments. Rather than paying £300 upfront, you spread the cost across three £100 instalments without interest charges. The instalments can then sit a high interest paying account like Trading 212’s debit card account.

For retailers, offering Pay in 3 tends to increase sales. Stores report higher basket sizes when customers use installment options, as £100 monthly feels more manageable than a £300 single payment. PayPal charges retailers additional fees (around 3%) for this service, but merchants often find the increased sales volume offsets this cost.

For me, it seems to work best on mid-range low risk products, like clothes, sport equipment etc.. Items where I’m unlikely to need the protection of a credit card, or that are below the value where such protection would kick-in.

Potential Drawbacks or Risks of Pay in 3

While interest-free, PayPal’s ‘Pay in 3’ carries financial risks for users who overextend themselves. Making multiple installment purchases simultaneously can lead to significant monthly payment obligations that become difficult to track and manage.

‘Pay in 3’ is an unregulated credit agreement, and so unlike credit cards there’s no Section 75 protection. Any disputes will be handled by PayPal’s internal dispute processes and buyer protection policies. You can’t revert to your bank if disputes occur – PayPal’s decisions are final.

Missing payments may affect credit scores, as PayPal reports payment behavior to credit agencies. While PayPal removed late fees in 2021, non-payment could still result in debt collection actions.

How to use PayPal ‘Pay in 3’

To start using PayPal Pay in 3, you’ll need a verified PayPal account in good standing. Begin by adding and confirming your debit card details. During checkout at participating retailers, look for the Pay in 3 option when your basket total falls between £30 and £2,000.

After selecting Pay in 3, PayPal runs automated checks. Upon approval, review the payment schedule showing three equal installments. The first payment processes immediately, with subsequent payments occurring monthly on the same date.

In some instances the retailer won’t have a Pay in 3 option, but allows you to pay via regular PayPal. In that case, you select Pay in 3 from the PayPal menu itself, as seen in the screenshot below:

Track your installments through your PayPal account activity, where you’ll see the full purchase amount listed under the merchant’s name. PayPal sends email reminders before each payment date. Monitor multiple active plans by checking your PayPal dashboard, which displays outstanding balances and upcoming payment dates.

Examples of Purchases Suitable for ‘Pay in 3’

A £600 laptop purchase splits into three £200 payments, making technology upgrades more manageable. Travel expenses, such as flight bookings or hotel stays, also fit the £30 to £2,000 limit.

Seasonal shopping, particularly during Christmas and Black Friday, shows high Pay in 3 usage. Parents often use it for back-to-school expenses like uniforms and supplies. Home improvements under £2,000, including furniture and appliances, represent another common use.

My personal case was a new tennis racket. I’m a huge tennis fan and recreational player, but my racquet had seen better days. I opted for a new one from Windsor based All Things Tennis. I initially intended to pay in full, but when I saw the Pay in 3 option, I thought it was a great chance to try it out.

I paid £60 up front, and had subsequent payments of £60 taken the two months after, from the nominated debit card in my PayPal account.

Typically I’d use a credit card to purchase to anything over £100, but Pay in 3 was quick and convenient.

How is Pay in 3 different to other Buy Now, Pay Later services?

Pay in 3 differs from competitors in several ways. While Klarna offers multiple payment options including “pay in 30 days” and longer installment plans, PayPal sticks to a fixed three-payment structure. This simplifies the process but offers less flexibility compared to other providers.

The £30 to £2,000 spending range for PayPal’s service sits between Klarna’s broader limits and Clearpay’s more restricted thresholds. PayPal’s established merchant network provides wider acceptance than newer BNPL providers, though Klarna has rapidly expanded its retail partnerships.

Some BNPL providers still charge late fees, PayPal removed these charges in October 2021. However, all major BNPL services report payment behavior to credit agencies, affecting users’ credit scores similarly.

Impact on Credit Score

Paypal runs a soft credit check when customers apply for Pay in 3. This check appears only on personal credit reports and doesn’t influence credit scores. However, payment behavior matters – meeting or missing monthly installments gets reported to credit agencies.

Re-payments are reported to TransUnion, and making payments on time can help build positive credit history. But missed payments might lower credit scores and limit future access to credit products.

Unlike traditional credit cards, opening a ‘Pay in 3’ plan doesn’t create a new credit account on credit files. The soft search remains visible for about 12 months but doesn’t affect lending decisions by other companies.

For a complete overview, see our guide on how BNPL deals affect your credit history.

Security Measures and Consumer Protection

PayPal’s Pay in 3 operates differently from standard PayPal transactions regarding consumer protections. While traditional PayPal purchases fall under comprehensive buyer protection policies, Pay in 3 transactions have specific limitations. The service operates as an unregulated credit agreement, meaning Section 75 of the Consumer Credit Act doesn’t apply.

Buyers can’t raise complaints with financial regulators about ‘Pay in 3’ issues. Instead, disputes must go through PayPal’s internal resolution system. Once PayPal makes a decision, it’s final – users can’t challenge through their banks.

PayPal maintains standard security protocols for Pay in 3 transactions, including encryption and fraud monitoring. The service includes PayPal’s basic buyer protection for issues like non-delivery or counterfeit items, but terms differ from regular PayPal purchases.

Is PayPal Pay in 3 worth it?

Pay in 3 represents the evolution of retail payments, offering a middle ground between immediate full payment and traditional credit options. While it provides valuable flexibility for managing expenses, you do need to use it carefully, as repayments can mount up.

My test went smoothly, and I’ll consider using it again in the future, but whether it’s right for you depends on your financial discipline and understanding of both its benefits and potential pitfalls.

Frequently Asked Questions About ‘Pay in 3’