Beginning Oct. 1, PayPal will no longer charge a late fee when customers miss a payment using the PayPal Pay in 4 service. It's the latest move in the increasingly competitive world of buy now, pay later (BNPL) services.

Key Takeaways

  • Buy now, pay later (BNPL) services make it easier for consumers to shop online and pay off their purchases over time and interest-free.
  • PayPal's decision to drop late fees may give it an advantage over some competitors.
  • The move comes as competition in the BNPL world heats up with big investments and acquisitions.

How PayPal Is Changing 'Pay in 4'

PayPal's Pay in 4 service allows users to shop at millions of online stores and pay off their purchases over time instead of immediately. 

PayPal launched the BNPL service last year. Pay in 4 splits the cost of a purchase into four equal installments. Users pay the first installment at checkout, then the remaining three at two-week intervals over the following six weeks. 

Like other BNPL services, Pay in 4 doesn't charge interest, but it does charge late fees if users miss a payment. 

But that will no longer be the case with new purchases on or after Oct. 1, 2021. The move matches Affirm, which doesn't charge late fees on its BNPL service.

Users should keep in mind, though, that missing a payment could negatively affect your credit score if you leave it unpaid for 30 days or longer. It could also cause you to get blacklisted by the BNPL service on future online purchases.

Big Investments in Buy Now, Pay Later Services

The online BNPL movement is relatively new, but it's growing quickly. The coronavirus pandemic likely helped, as consumers shifted their spending more toward online purchases, and economic difficulties made it more necessary for some to pay over time.

Earlier this month, Square announced that it would acquire Afterpay, another leading BNPL service, for $29 billion. Another competitor, Klarna, received a $46 billion valuation in a funding round in June.