If you MUST use PayPal...PayPal Magic: Making PayPal Payments

Would you ever play Russian Roulette? Probably not. PayPal is almost like this deadly game: with each transaction that you make, it could be financial life for another day, or financial death now. PayPal, as a service is arbitrary and unpredictable.

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However, if for whatever reasons you might have, you want to continue using PayPal (or open another PayPal account), this section is for you. PayPal Magic is a tutorial of tips and tricks that will help you decrease the chances of PayPal limiting or flagging your account. If you can avoid making some of the common "errors" that a lot of people make when using PayPal, you can learn to survive the Paypal trap another day!

Sending Money to Anyone

Use PayPal's most basic feature to send money to anyone with an email address, even if the recipient doesn't have a PayPal account.

It's a little-known fact that you can send money to anyone who has an email address: the person to whom you send money doesn't need a PayPal account! The only information you need is the recipient's email address and, of course, the amount of money you would like to send.

Back in the days when PayPal was giving away $10 for each new account referred, some entrepreneurial students would send $.20 payments to every kid in their school in hopes that the recipient would create an account. If no one claimed the payment, the money would eventually go back to the sender. Not a bad moneymaking scheme, even if only 1 in 20 recipients signed up! Today, with over 50,000 new users each day, PayPal doesn't offer such a bounty for referral. However, you can still enjoy the fun of surprising someone with a "You've got cash" email.

Sending a Payment via Email

To send money to someone (whether they have a PayPal account or not):

  1. Log into your PayPal account.

  2. Click the Send Money tab, and then click the Pay Anyone subtab.

  3. Enter the recipient's email address.

  4. Enter the amount to send and select the currency you wish to use.

  5. For Type, select Goods or Service if you are paying someone back for a good or service they provided you.

    Enter a Subject and a Note (both are optional). The Subject is important, because it appears as the subject of the email sent to the recipient of your payment. The note, however, is less likely to be seen, because it appears buried in the email. If you need to include important details, it is best to send them in a separate email.

  6. Click Continue when you're finished with this page. The next page shows a summary of the payment.

    Click More Funding Options to choose how to fund your payment. If you are just sending money to a friend, select "No shipping address required" in the Shipping Information section. Otherwise, if you are paying for an item that will be shipped to you, you'll most likely want to provide your address. Note that some sellers will refuse your payment if you don't include a confirmed address.

  7. Click Send Money when you're done.

To confirm that everything has gone as planned, PayPal will send you a "Receipt of your payment" email to notify you that you have indeed sent the money. If the recipient has a PayPal account, she will receive a similar email letting her know that she has received money. If the recipient doesn't have an account, PayPal will send a "You've got cash" email, along with instructions to sign up for a PayPal account. Only after signing up for an account will the recipient be able to access your payment.

If you pay with a credit card and the recipient has a Premier or Business account, the money will be deposited directly into the account. If you're sending money to a friend, you might want to send it to her personal account to avoid the PayPal fees, although this means you won't be able to fund the payment with a credit card.

What If They Don't Sign Up?

If you send money to someone without a PayPal account, it's possible that the recipient won't sign up and claim the money. This can happen, for instance, if the recipient confuses PayPal's "You've got cash" email with unsolicited spam. Also, many people feel uneasy about signing up for a service like PayPal, thinking that they might be charged a bunch of fees or that they'll be victimized if they share their financial information over the Internet. For this reason, you might need to reassure skittish payees before sending them money with PayPal.

If, for whatever reason, the recipient doesn't sign up and claim the payment within 30 days, PayPal will return the funds to your account (or refund your credit card, if that's how you funded the payment). PayPal will also reverse the payment if you try to send a credit card-funded payment to a Personal account and the recipient doesn't upgrade to a Business or Premier account within 30 days to accept the payment. Either way, you can try to resend the money, but your best bet is to contact the recipient separately via email to ensure you have the right email address and that they understand what they need to do to get the money.

If you decide to cancel an unclaimed payment for any reason, you can reverse the transaction before the 30-day automatic reversal period only if the recipient has not signed up and claimed the money. To cancel a pending payment, log into your PayPal account and click the History tab to view your transaction history. Find the payment you'd like to reverse and click the Cancel button.

Choosing Funding Methods

Select your preferred payment funding source each time you make a payment, a necessary step if you want to pay with a credit card or alternate bank account.

While a primary reason so many people use PayPal is to send and receive credit card payments, there are several other ways to make a payment without using a credit card at all.

Each time you make a payment, PayPal displays the Source of Funds that will be used to make the payment on the Check Payment Details page and gives you an opportunity to switch sources if you so desire. Always review how you're making your payment and switch payment sources if necessary.

Click More Funding Options to display the Funding Options page. Each time you make a payment, you can select a funding source among several choices.

PayPal offers several different ways to fund your payment:

PayPal Balance

If you have funds sitting in your PayPal account, they are always used first when making a payment. Only if the amount of your payment exceeds your balance will you be able to choose the source for the remaining funds. The exception is the eCheck option, which can be used whether or not you have funds in your PayPal account. See the next section of PayPal Magic for a full explanation of that feature.

Instant Transfer

The funds necessary to make the payment will be drawn from your bank account. Although PayPal does not actually get the funds from your bank for several days (thus, the transfer is not technically instant), the payment recipient will have immediate access to the funds you have sent.

Because of this, PayPal requires that you set up a backup funding source to be used in the event that the bank transfer fails (i.e., the transfer bounces). Your credit card is normally used as the backup funding source; if you don't have a credit card on file with your PayPal account, you might have to send an eCheck instead.

Credit Card

An immediate charge to your credit card or debit card will be made. In the U.S., PayPal supports Visa, MasterCard, American Express, and Discover. In the UK, Switch and Solo are also supported.

One reason people like to pay with a credit card is the added protection afforded by credit card issuers. Fortunately, if you use PayPal to pay for an eBay auction (and some other terms are met), you might be eligible for the Buyer Protection Policy, regardless of the funding source you choose for the payment.


An eCheck is a non instant bank transfer, in which your payment will remain pending until PayPal receives the funds from your bank. When the bank transfer clears, PayPal switches the payment status to Completed and deposits the money in the recipient's account. This usually takes two to four business days. eChecks are useful for large payments (greater than $1,000), since they can be used when other payment options aren't available (if, for example, you have maxed out your credit card).

The maximum fee assessed to an eCheck recipient is $5.00. This means that eChecks are a good way to lower your seller fees, at least for any payment of US $162.07 or more. Although you, as the buyer, will not directly benefit from this price advantage, you might be able to negotiate a discount on the purchase, since the seller will be saving quite a bit on PayPal transaction fees. For example, on a $1,000 purchase, the seller could stand to save $17.90 to $24.30 in transaction fees.

Overriding the Funding Source Hierarchy

As mentioned in the previous section, if you have a balance in your PayPal account, it will be used to fund all your payments. Only if the amount of a payment exceeds your balance will you be able to fund your payment with a credit card or checking account transfer. (An eCheck can be sent regardless of your PayPal balance, however.)

To work around this limitation, bring your account balance down to zero before making your payment. Here's how to do it:

  1. Make a payment to an email address that you control but that isn't registered with PayPal. Set the amount of the payment equal to the balance in your PayPal account.

  2. Make the payment you were originally intending, and fund it with a credit card or Instant Transfer.

  3. Once you've completed the payment, go to your payment history and cancel the pending payment you made to yourself. The funds will then be moved back into your PayPal account.

This is a quick and effective way to use a credit card or Instant Transfer, without having to withdraw any funds in your account.

eBay-only Payment Methods

eBay buyers have the benefit of three additional PayPal payment methods not available elsewhere:

eBay Anything Points

eBay Anything Points is a loyalty program, similar to airline frequent flyer miles, introduced by eBay in 2003. You can earn points from:

  • Companies who have partnered with eBay to offer points for joining their service (for example, Hilton, American Airlines, and Earthlink)
  • Individual eBay sellers who offer points to the winning bidders of their auctions
  • Every purchase made with the eBay Credit Card

Once you've saved up enough Anything Points, you can use them with PayPal to make purchases for eBay auctions. When you go through the eBay checkout process, before you get to the PayPal payment screen, you have the option of using eBay Anything Points to pay the entire amount or just a portion of it. For more information, visit http://anythingpoints.ebay.com.

eBay Gift Certificates

If someone emails you an eBay Gift Certificate, it shows up in your PayPal account, just like an ordinary payment. You can apply it to any auction you win, provided that you go through the eBay checkout process. For more information, visit https://certificates.ebay.com.

PayPal Buyer Credit

PayPal Buyer Credit is basically a personal loan extended to you by PayPal (actually, by PayPal's lending partner, GE Credit), that can be paid down over time. As with most forms of credit, not everyone gets approved, and if you don't pay your bill on time, you will pay penalties. PayPal Buyer Credit can be used only on eBay listings in which the seller explicitly offers the Buyer Credit option.

Buying from Outside the USA

The funding sources available to non-U.S. users is more limited. For most countries, credit/debit cards and PayPal balances are the only methods available. Visa, MasterCard, American Express, and Discover can generally be used in any country, and UK users also have the option of Switch and Solo.

While the Instant Transfer and eCheck payment methods are not available outside the U.S., it is possible for German and Dutch users to load up their PayPal accounts from a bank account. You must prepare ahead of time, however, because this takes several days. PayPal provides all the bank account information needed to use the standard inter-bank transferring systems of Germany and the Netherlands.

Next Section: Receiving PayPal Payments



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