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How Does PayPal Work?

Joining PayPal is just the beginning, and the benefits far outweigh any fees charged to eBay sellers. There’s no charge to the buyer to pay for an online purchase — or to send money to anyone.

Payment methods supported by PayPal

You have several ways to fund the money you send to another party through PayPal:

  • Instant transfer: Sending money this way means the money is immediately credited to the recipient’s account. That person can then immediately transfer the money to his or her personal bank account. If you want to send a transfer, you must have a credit or debit card registered with PayPal as a backup for your funds. It’s just like writing a secure check — without exposing any of your personal information.

  • eCheck: Sending an eCheck isn’t as “instant” as an instant transfer. It’s just like writing a check from your checking account; it can take from three to five days for an eCheck to clear. You don’t need a backup source of funds when you use eCheck.

  • PayPal balance: If someone sent you money through PayPal or you’ve sold something on eBay, you have a balance in your PayPal account. This balance is first applied to any purchases you’ve made. Then, when your account has no balance, you can choose to pay by credit card. It’s simplest to keep your books balanced if you withdraw any PayPal balance to your business account before making a purchase.

  • Credit card: Charge it! Putting your PayPal purchases on a credit card is a good idea. Not only are you protected by PayPal, but your credit card company also backs you up in case of fraud.

You can register multiple credit cards on your PayPal account and select a different one for different types of purchases. That way, you can place personal purchases on one account and business purchases on another. It makes end-of-year bookkeeping a lot easier!

How to send money

PayPal breaks types of payments into categories based on what you’re paying for. You can pay for almost anything in the world on the PayPal system (as long as the recipient has an e-mail address). A few things that you can’t pay for with PayPal include most items related to gambling, adult content or services, and buying or selling prescription drugs from noncertified sellers.

If you’re planning to send payments for something that may be a tad questionable, you probably want to visit the Acceptable Use Policy for the United States in PayPal’s help area.

After you sign into your PayPal account and click the Send Money tab, you can send money from PayPal in the following ways:

  • Paying for eBay items: When you buy an eBay item on eBay, you need to pay through the eBay Checkout system.

  • Goods (other): By clicking this radio button, you can send money to anyone in the world for goods purchased anywhere other than eBay.

  • Services: You can send payment for a service performed for you or your business, such as web design, bookkeeping, psychic readings — your imagination can get carried away here.

  • Personal: Use this when you need to send money to your kid in college or pay back your roommate for saving you from great embarrassment when you left your wallet at home on a double date.

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When you’re using the cash-advance feature for the Send Money→Personal payment type, consider using a payment method other than credit card to avoid possible credit card fees for a cash advance.

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