PayPal for Beginners

Using paypal

PayPal is the world's most popular 'middle man' 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 via email. 

What Exactly Is PayPal?

PayPal for beginners
PayPal for beginners. Grill / Getty

Since its start in 1998, PayPal has become such a convenient and trusted way to transfer money online, over 45% of eBay's purchases go through PayPal. An estimated $7000 gets transacted every second of every day via PayPal.

Why Is PayPal So Popular?

PayPal has three big benefits:

  1. It is widely used, so there are strong familiarity and trust around the PayPal service.
  2. It is very convenient, as all you need to know is the person's email address.
  3. 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 simultaneously concealing each party's credit card and banking information. This is ideal for purchasing goods from strangers, and for transferring money to other private individuals.

Similar to an escrow service, PayPal acts as the middleman holder of money. Through its policies, practices, and business integrity, PayPal has earned the trust of both parties. PayPal implements guarantees so that both buyers and sellers have assurances that their money or goods can be recovered should the transaction turn sour. This is one way you can trust PayPal not to be a scam site.

Most of all: both parties can 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/receive money through Paypal. You only need the following:

  1. A valid email address.
  2. A valid credit card or bank account.

Precisely because it is so easy to use, PayPal is the favorite of millions of amateur sellers and buyers around the world.

How does PayPal Make Money?

One way PayPal makes money is to charge sellers a percentage of the sale.

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

  • PayPal is free for buyers of goods. Once a buyer sets up a Paypal account, then 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 The funds are withdrawn from the user's credit card or bank account, or both.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 + (1.9% to 2.9%) surcharge to receive money. PayPal will only charge you to receive funds. Using a special surcharge formula, PayPal will bill sellers whenever they receive a payment from a buyer.
  • PayPal sometimes charges you to send money to a friend or family member. 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. Example: sending $500 to your son while he is at school, or giving $75 to your paintball club online.
  • PayPal does surcharge you to send money to friends or family outside of the country (~2% surcharge).
  • PayPal does surcharge you if you send money to friends or family from your credit card.
  • Paypal Fee Table:
  1. For receiving transfers under $3000 USD: the fee is 2.9% + $0.30 USD.
  2. For receiving transfers $3000.01 to $10,000: the fee is 2.5% + $0.30 USD.
  3. For receiving transfers $10,000.01 to $100,000: the fee is 2.2% + $0.30 USD.
  4. Receiving transfers over $100,000: Paypal charges 1.9% + $0.30 USD.

As you might guess, smart sellers will increase their prices to offset this charge on their side of PayPal.

What Can You Use PayPal For?

Use PayPal instead of your credit or debit card when shopping online.

 There are three major uses of PayPal:

  1. For 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.
  2. For 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.​
  3. To 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?

PayPal is sensitive about online payment security.

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

  1. PayPal's currency conversation rates are very expensive. If you are a Canadian or Englander, for example, and you are purchasing goods from an American vendor, the exchange rates that PayPal will charge are not only more costly than most banks, but PayPal will also charge you a 2% surcharge to convert your currency.
  2. PayPal is overly-sensitive about fraud risk, and will quickly shut down a busy PayPal account if it suspects any misconduct. This means: If PayPal sense a safety or privacy risk, it will freeze your funds and not give you access for weeks until you can disprove any allegations of fraud.
  3. PayPal phone support can be spotty. While many users have received excellent support from their call desk, many other users report that they have been frustrated by the lack of attentiveness and lack of knowledge by the phone staff.
  4. PayPal is more expensive than many alternatives: Interac e-transfer, for example, is slightly cheaper for some cross-border transfers.
  5. 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 black mark on PayPal's past business practices.

How Safe Is PayPal?

PayPal has designed top of the line security for its payment processes.

Although no system is 100% foolproof, PayPal has designed many checks and balances into its system to keep errors and fraud to a bare minimum. You won’t find another online financial institution that’s better at protecting its customers than PayPal. In fact, PayPal is arguably over-sensitive when it comes to fraud fears, as they will not hesitate to freeze an account that they suspect is practicing fraud.

  1. PayPal is guaranteed against fraud and identity theft. PayPal guarantees 100% protection against unauthorized payments from your account. To help stop identity theft, every transaction is confirmed by email to the PayPal account holder. Any transaction you wish to dispute will give you access to a 24/7 support team of analysts who will sort out your problem for you.
  2. eBay purchases can also be insured up to $1000 through PayPal. A service called "PayPal Buyer Protection" is another way that PayPal will certify that certain sellers are trustworthy.
  3. 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 help eliminate identity theft. The anti-fraud team’s sole job is to make every PayPal transaction as safe and seamless as possible.
  4. Many other PayPal safety measures distinguish the service from its competitors. PayPal's website details additional controls such as proof of shipment and proof of delivery.

How Does PayPal Withdraw My Money?

Withdrawing money from your PayPal account is easy, but it could take a few days.
Zabel / Getty

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

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

  1. You can just let PayPal withdraw against your credit card or bank account only when you make a purchase. Once you send money, PayPal will send the funds immediately, and then will withdraw the funds from your bank/credit card within two business days. With this option, there is no need to maintain a direct PayPal balance, and there is no fee to use this technique.
  2. You may 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 more convenient to separate your online purchasing budget from your regular banking and credit cards. There is no fee to use this technique, either.

How Do I Withdraw Money From PayPal?

Withdrawing money from PayPal is easy. No, it is not directly from a bank machine. Rather, PayPal credits your credit card or your bank account through a type of wire transferring. Once the money is transferred to your bank account, you then withdraw it any other money. While this PayPal 'withdrawal' costs nothing, it can take up to 8 business days for the PayPal-to-your-bank transfer to complete.

How to Set Up A PayPal Account

Getting started with PayPal is fast and easy.

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.


You will need:

Payment source note 1: You may enter multiple credit cards and bank accounts to be used as your payment sources. While only one of these financial sources will be designated as primary, you can allocate payments from any of your sources at any time.

Payment source note 2: When you send a PayPal payment, PayPal will debit your primary source of funding within two business days. If you exceed your available credit limit, Paypal will attempt a second debit within another business day. 

Choosing Your PayPal Account Type​​

Choice 1: ​PayPal Personal Account

This is the basic PayPal account that lets you pay for your eBay purchases with ease. You can use it to send and receive money. You can send funds to anyone with an email address in 55 countries and regions. A personal account will even let you accept payments should you sell something via eBay. The catch: 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 you make through it. There is, however, a limit on how much can you receive per month. If you plan to sell a high volume of product, the Personal account might be too restrictive.

Choice 2: PayPal Business Account

This is the business class of a PayPal account, best suited to individuals running a large scale online business or online store. The business account allows you to operate under your business name, and use Reporting and eBay Tools with no restrictions on transaction size. It is the best choice if you expect complex Accounts Payable. There is broad functionality for the business owners that helps them to manage very large amounts of sales with ease.

Like Premier, there are optional services with optional fees, but the base Premier account is free for creating, holding, and sending money; please check PayPal website for details. The setup process of a Business account is similar to that of a Premier account. If you currently use either Personal or Premier account, you can upgrade to Business.

How Do I Send or Transfer Money With PayPal?

Send or receive money with PayPal in a few simple steps.

Like any good online banking institution, PayPal has really made it as convenient and as simple as one could expect. 

For Most eBay Purchases

Most eBay auctions have a 'Pay Now' or 'Send Payment' link directly on the eBay page in question. If you follow this link, PayPal will fill in the details of the seller and the auction ID number for you. Often, it will also fill in the S & H information as well. All you will need to do is login with your secret PayPal password and email address, and confirm that your shipping address and primary funding source are correct. You add extra notes for the seller (e.g. 'please send via US Post'), and the money transfer takes place immediately. A confirmation email will be sent to you, and your bank/credit card will be debited within two days.​

Send Money to the Recipient's Email Address​

For personal money transfers, you go directly to the Paypal website and click send money. You login with your password, and then copy-paste the recipient's email address into the send money form. You'll need to add in the details of the transaction, but the process is very straightforward from there. Again, your personal banking information is always concealed from the buyer.