PayPal for Beginners

PayPal is a convenient and safe way to send and receive money online

Illustration of a person going into a retail store with PayPal on their phone

Lifewire / Daniel Fishel

PayPal is the world's most popular middleman service for online purchasing. Where MoneyGram and wire transfers were the standard in the 20th century, today over 170 million internet users turn to PayPal to send money to each other based on an email address. 

Why Is PayPal So Popular?

Since its start in 1998, PayPal has become a convenient and trusted way to transfer money online.

Woman looking at laptop
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PayPal offers three major benefits:

  • Trustworthy: It is widely used, so there are strong familiarity and trust around the PayPal service.
  • Easy to use: It is convenient, as all you need to know is a person's email address to send money.
  • Safe: It conceals banking and credit card information from the other party.

How PayPal Works

PayPal lets people send money to each other's email addresses while concealing each party's credit card and banking information. This approach is ideal when you want to purchase goods from strangers and transfer money to friends and family.

One way PayPal makes money is to charge sellers a percentage of the sale.
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Similar to an escrow service, PayPal acts as the middleman holder of money. PayPal implements guarantees so that both buyers and sellers have assurances that their money or goods can be recovered should something go wrong with the transaction.

Most of all, both parties avoid the paperwork of dealing directly with banks and credit card providers.

PayPal Requirements 

There is no requirement for special technology or a business license to send or receive money through Paypal. You only need the following:

  • A valid email address
  • A valid credit card or bank account

How does PayPal Make Money?

As a middleman financial broker, PayPal makes its profit by charging a percentage of the money it transfers.

  • PayPal is free for buyers of goods. When a buyer sets up a Paypal account, it costs nothing to send money to a vendor. The funds are withdrawn from the user's credit card or bank account, or both. PayPal does not charge buyers to send money.
  • PayPal charges sellers of goods a 30-cent fee plus a percentage surcharge to receive money. PayPal only charges an account when it receives funds. Using a special surcharge formula, PayPal bills sellers when they receive a payment from a buyer. The rate varies between 1.9% and 2.9%.
  • PayPal sometimes charges to send money to friends or family members. If you use your bank account or PayPal balance to send money, and the receiver is not a registered seller at PayPal, then there is no fee to send or receive funds. For example, there's no fee when you send $500 to your son while he is at school, or give $75 to your paintball club online.
  • PayPal charges a surcharge to send money to friends or family outside of the country. Expect a surcharge of roughly 2%.
  • PayPal charges a surcharge to send money to friends or family using a credit card.

What Can You Use PayPal For?

There are three major uses of PayPal:

  • One-time purchases online: You like a pair of shoes on eBay, for example, or you want to order a new coffee machine from an online vendor. PayPal is a good alternative to using your credit card, as you can keep your card information from being circulated online.
  • Continuing subscriptions online: If you want to subscribe to Netflix or another online subscription service that requires monthly payments, then PayPal is a good choice. You can even set PayPal to withdraw directly from your bank account instead of your credit card.​
  • Send money to friends or family: You need to repay some cash you borrowed from your buddy, or your kid is in Australia and you need to transfer money to them. PayPal is good at these transactions and can have zero surcharges.

So, What's the Catch With PayPal?

Like any online service, there are downsides, and prices you have to pay when using PayPal.

  • PayPal's currency conversation rates are expensive. If you are in Canada or Mexico, for example, and purchase goods from an American vendor, the exchange rates that PayPal charges are not only more costly than most banks, but PayPal also charges a 2% surcharge to convert currency.
  • PayPal is overly-sensitive about fraud risk, and will quickly shut down a busy PayPal account if it suspects any misconduct. If PayPal senses a safety or privacy risk, it freezes the funds in the account and won't give access to the account for weeks until the account owner can disprove any allegations of fraud.
  • PayPal phone support can be spotty. While many users have received excellent support from the PayPal call desk, other users report that they have been frustrated by the lack of attentiveness and lack of knowledge by the phone staff.
  • PayPal is more expensive than many alternatives. Interac e-transfer, for example, is slightly cheaper for some cross-border transfers.
  • PayPal has been accused of overcharging customers on interest fees, late fees, and other small incremental charges. While these accusations were quickly resolved by refunding customers, this is a negative mark on PayPal's past business practices.

    How Safe Is PayPal?

    Although no system is completely foolproof, PayPal has designed checks and balances into its system to minimize errors and fraud. There isn't another online financial institution that’s better at protecting its customers than PayPal.

    Security agent with earpiece
    Juice Images / Getty Images

    PayPal is over-sensitive when it comes to fraud fears, as the company will not hesitate to freeze an account that their agents suspect is committing fraud.

    • PayPal is guaranteed against fraud and identity theft: PayPal guarantees 100% protection against unauthorized payments from an account. To help stop identity theft, every transaction is confirmed by email to the PayPal account holder. Any transaction you dispute gives you access to a support team of analysts who will sort out the problem for you.
    • eBay purchases are insured up to $1000 through PayPal: A service called PayPal Buyer Protection is another way that PayPal certifies that certain sellers are trustworthy.
    • PayPal's Anti-Fraud Team works 24/7: Using sophisticated risk models and advanced technology, the team is able to detect and often predict suspicious activity to eliminate identity theft. The job of the anti-fraud team is to make every PayPal transaction as safe and seamless as possible.

    How Does PayPal Withdraw My Money?

    You may choose either current balance or instant withdrawal as your payment method.

    People exchanging cash
    Zabel / Getty

    PayPal is quite flexible, beginner-friendly, and able to extend its own form of short-term credit. 

    • Let PayPal withdraw against your credit card or bank account only when you make a purchase. Once you send money, PayPal sends the funds immediately, then withdraws the funds from your bank or credit card within two business days. With this option, there is no need to maintain a PayPal balance, and there is no fee to use this service.
    • Transfer money to PayPal directly, and leave that money in your PayPal account. Although you will not gain bank interest with this method, it does make it convenient to separate your online purchasing budget from your regular banking and credit cards. There is no fee to use this service.

    How Do I Withdraw Money From PayPal?

    Withdrawing money from PayPal is easy. PayPal credits your credit card or your bank account through a type of wire transfer. Once the money is transferred to your bank account, you then withdraw it. While this PayPal withdrawal costs nothing, it can take up to eight business days to complete the transfer from PayPal to your bank.

    If you opened a seller account, you can request a PayPal business debit card, so you can access your balance at an ATM or through a point-of-sale transaction.

    How to Set Up A PayPal Account

    You can start a new PayPal account within minutes. The initial credit checking has already been done by your credit card company and your bank; now you just need to get PayPal to connect that information to your email address.

    person using the paypal app on a cell phone
    Paypal

    Requirements

    You will need:

    Choose Your PayPal Account Type​​

    There are two types of PayPal accounts: a PayPal Personal account and a PayPal Business account.

    A PayPal Personal account is the basic PayPal account that lets you pay for your eBay purchases with ease. Use it to send and receive money, and to send funds to anyone with an email address in 55 countries and regions. You can also use a Personal account to accept payments if you sell products through eBay. The catch is that you can only accept payments from other PayPal accounts, and you cannot accept credit or debit card payments.

    There is no fee for either the Personal account or the transactions made through it. There is, however, a limit on how much can be received per month. If you plan to sell a high volume of product, the Personal account might be too restrictive.

    A PayPal Business account allows you to operate under your business name and use the Reporting and eBay Tools with no restrictions on transaction size. It is the best choice if you expect complex accounting. There is broad functionality for the business owners that help them to manage large amounts of sales with ease.

    How Do I Send or Transfer Money With PayPal?

    Most eBay auctions offer a Pay Now or Send Payment link on the eBay page. If you follow this link, PayPal fills in the details of the seller and the auction ID number. Often, it will also fill in the shipping and handling information. All you need to do is log in with your PayPal password and email address and confirm that your shipping address and primary funding source are correct. You add extra notes for the seller (for example, please send by US post), and the money transfer takes place immediately. A confirmation email is sent to you and your method of payment will be debited within two days.​

    PayPal screenshot

    For personal money transfers, go directly to the PayPal website and click Send Money. Log in with your password, then enter the recipient's email address into the Send Money form and add the details of the transaction. The process is straightforward, and your personal banking information is concealed from the buyer.