What is instant online credit? Everything you need to know

There's a way to get easy money for Internet purchases. CNET breaks it down and helps determine whether it's right for you.

Ben Fox Rubin Former senior reporter
Ben Fox Rubin was a senior reporter for CNET News in Manhattan, reporting on Amazon, e-commerce and mobile payments. He previously worked as a reporter for The Wall Street Journal and got his start at newspapers in New York, Connecticut and Massachusetts.
Ben Fox Rubin
4 min read

Affirm founder and CEO Max Levchin is helping make fast credit available on the Internet. But should you use it?

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And just like that, Jeremy Bray found himself with a new line of credit for $1,500.

While shopping online last year, the 28-year-old entrepreneur decided to sign up for PayPal Credit to buy a $1,000-plus laptop. After a short application process, he was approved in less than a minute and even got six months to pay PayPal back without incurring any interest.

The only hitch was that when he did pay in full and on time, it didn't help his credit score, which he monitors regularly using the Credit Karma app. He realized only later that PayPal Credit doesn't report borrowing to credit bureaus, which can be a drawback for trustworthy borrowers.

"I was sort of surprised by that," said Bray, who runs a computer security startup in Pueblo, Colorado. "I didn't know that going into it...It could've been buried in all the legalese that people don't read."

Say hello to instant credit, an increasingly popular way to immediately access thousands of dollars toward an online purchase. It may sound great, but there are, of course, things to consider. Each company offering credit operates a little differently, so customers may not know exactly what they're signing up for. On top of that, with consumers already bombarded with credit card offers, this kind of speedy credit could create even more temptation to buy that big-ticket item you've had on your wish list -- and go deeper into debt in a few keystrokes.

Of course, most people don't have the time or patience to wade through all the particulars of these offers, so CNET decided to do some of that work for you.

The basics: The three leading players in instant online credit are PayPal, Affirm and Klarna.

PayPal Credit works a lot like a traditional credit card and can be used at many of the same places accepting PayPal. The service also offers installment plans. It's worth noting, though, that Paypal Credit was fined $25 million last year by a consumer watchdog agency for deceptively advertised promotions.

Affirm, which was created in 2012 by Paypal co-founder Max Levchin, offers one-time loans for specific items. It works like a car loan, but for an exercise bike or jewelry. Affirm can be used at online mattress retailer Casper, TheRealReal and other sites.

Klarna is a Swedish company expanding its presence in the US. It offers a pay-after-delivery service on Overstock.com and other retailers that lets people ship stuff to their houses and pay two weeks later if they keep the items. The company will also roll out an installment plan in the next two months.


You don't need a credit or debit card to buy online, but sidestepping plastic comes with its own issues.

Jamie Grill/Blend Images/Corbis

Interest rates: The base interest rates from PayPal Credit, Affirm and Klarna's upcoming installment plan are higher than your typical credit card, which offers a national average rate of 15.16 percent, according to Creditcards.com, which is part of personal-finance site Bankrate.com.

The reason for this difference is because the online companies offer credit to riskier borrowers, including folks with worse credit and younger consumers, who tend to have thin credit histories, said Matt Schulz, analyst for Creditcards.com.

PayPal Credit and Klarna offer rates right around 20 percent, although some retailers can offer to give you a break. Affirm's range is between 10 percent and 30 percent.

Late fees: PayPal Credit's late fee is $25 for a first offense and $35 per month if you're late again within the next six billing periods. But the fee maxes out at $5 if the minimum payment due is less than $25.

Klarna's pay-after-delivery service doesn't include any interest or fees for customers. But if you haven't paid after the two weeks, Klarna charges a one-time late fee of up to $10.

If you're terrible at paying on time or hate late fees, go with Affirm, which has no late fees at all.

Reporting to credit bureaus: PayPal Credit doesn't report your borrowing to credit bureaus, whether good or bad. Klarna and Affirm do report, but only in certain instances.

This topic is tricky. Depending on who you talk to, a lack of reporting can be viewed differently. Schulz, of Creditcards.com, said it's valuable for people to build up their credit histories when borrowing, so he was less than impressed with PayPal Credit. Yet not everyone agrees with that.

Anyone looking to establish a history probably shouldn't consider these online credit companies and should instead go with a credit card, which can be used in more places, according to Chip Snively, who teaches personal finance at the University of North Carolina's Kenan-Flagler Business School. For that reason, Snively doesn't see a lack of reporting by the online companies as a big concern.

Credit limits: The limit varies depending on who you go to, with Affirm offering a maximum one-time loan of $12,000, with more normal loans at around $700. PayPal and Klarna wouldn't specify their loan amounts but said they would rise after repeated use.

Collection: PayPal Credit and Klarna use third-party collection agencies. Affirm does collections in-house.

The bottom line: Some people may really enjoy the six-month grace period from PayPal Credit or the lack of late fees from Affirm. More than anything else, though, it is important to buy what you can afford.

And if you really want to build up your credit history, many of these options aren't right for you.

"So many of these can be so different," Schulz said, "and it's important for you to know exactly what you're getting into before you're getting into it."