Online Payments: Should you use PayPal Or Credit Cards?

Making online payments is second nature to most people, and with so many things able to be bought and paid for over the Internet it is easy to become complacent with your choices of payment method, and neglect the decision-making processes you would normally go through to determine the feasibility, security and ease of use. Therefore take a minute to consider the pros and cons of both PayPal and credit card payments for paying online.

Online PayPal Payments

The PayPal payment system is probably most famous for its use in conjunction with the online auction site eBay however PayPal can be used to send and receive large or small amounts to friends, family, clients or creditors to and from anywhere in the world in any currency. Other things you should consider when using PayPal to make online payments include:

  • The international exchange rate is not always as competitive. If you are making a payment in foreign currency you may not get as good as the deal on the exchange rate as you would get if you went through a bank or used your credit card. PayPal typically use a higher exchange rate which can cost you more when you make your conversions.
  • Higher fees. Every PayPal transaction you make will be charged a percentage of the amount and is tiered on the amount you transact each month. This means that making payments using PayPal can be very expensive.
  • Transfer delays. Because PayPal is not actually your own bank account there is more time lost in processing your payment and it can take between 3 to 5 business days for a PayPal payment to be made.
  • You never have to give out your bank account details. PayPal acts as an intermediary between your bank account and the account of the person you are making a payment to. This means your creditor never has to see your bank account details and where normally your payment details would appear on their statement only your PayPal account number appears and this is not directly linked to any of your own accounts but is simply a stopping place for money coming in or going out of your accounts.
  • Anyone can have a PayPal account. You don’t have to apply and be approved for a PayPal account as you simply need an e-mail address to open the account and start using it in conjunction with your bank account.
  • You’re spending your own money. A PayPal account has as much or as little funds as you put in from your own account, so when you are shopping online you are only using your own money so you are not tempted to go into debt for an online bargain.

Online Credit Card Payments

Making an online payment using a credit card is just so easy, so what else did you need to consider before using your credit card to buy or pay bills online? Consider the following pros and cons of making online payments using your credit card:

  • Your credit card and personal details can be stolen. While you know all of the security features to look for when you are entering your credit card details online, you may become complacent or there may be a credit card scam out there mimicking a secure payment site which you haven’t heard about yet. If you become a victim and have your credit card details stolen, from those credit card details and payment details your identity can also be stolen and used. This puts you at risk of having your credit history ruined because with your personal details a fraudster can go on to apply for new credit cards in your name, racking up more debt which you may not even know about until it comes time to apply for a loan for example.
  • You can’t always buy in another currency. If you have found yourself in an international store and want to make a purchase you may not be able to use a non-native credit card to pay. Also if you are able, foreign currency transactions can attract high fees on a credit card.
  • Double security verification. Visa and MasterCard have both introduced another layer of security when you use your card for online payments. The Verified by Visa and MasterCard SecureCode systems require you to register a second password when you activate your credit card. Then when you use your card at participating online stores you will be asked for this additional password before your transaction is processed and the store will then verify your password or check the security of your code before processing the payment and this is just another level of personal information a fraudster would need to have to successfully steal your identity.
  • Credit card payments are instant. If you need to pay a bill or transfer money instantly to secure a purchase online then you can be sure that your credit card payment will be received shortly after you make it.
  • You don’t need to set up another account to use your credit card online. If you already have a credit card then you can start making online payments whenever you choose and you don’t need to set up another account with another password and new account numbers.

Choosing an online payment method is a matter of personal choice and it is important to make a decision based on what you feel most comfortable with because protecting your bank account balances and your identity should be your main priorities, before considering which payment method it is that will help you secure that rare collectible only available online.

Alban is a personal finance writer. He provides tips to help people manage their finances and compare the best home loans online

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43 People have left comments on this post

» MageNo Gravatar said: { Jun 29, 2010 - 02:06:45 }

I think both – credit cards and paypal – aren't the ideal thing.
PayPal requires to pay high fees while using your credit card increases the risk of your card getting hacked.
I recommend using wire transfer or – if possible – prepaid cards like paysafecard (that one can be used with most online games and Skype for example).
They are secure since you only use their pin once, don't charge you with fees and don't require you to reveal any personal data.

jmichelsenNo Gravatar Reply:

I agree Mage, PayPal fees are outrageous from a business stand-point. If you are actually still using ebay to sell goods, and PayPal to be paid for them, you are getting dinged almost 15% in fees. Prepaid cards are a great idea, as you can purchase prepaid Visa too for all your online shopping but we still have to find that balance of convenience, cost and safety…

MageNo Gravatar Reply:

yeah, true
but I'd rather accept the "inconvenience" of having to get a prepaid card than risk fraud or pay 15% in fees for each transaction …

jmichelsenNo Gravatar Reply:

and on top of that, prepaid cards can be a great way to budget, much like the envelope system but with added convenience!

MageNo Gravatar Reply:

What's the "envelope system"?

blinkengoNo Gravatar Reply:

Check the wiki page, Mage. 😉

Well, jmi, i think that exactly that added convenience is going to win the battle of fast and secure online payments…

jmichelsenNo Gravatar Reply:

Thanks for sharing that with is blinkengo!

jmichelsenNo Gravatar Reply:

Check out the link provided by blink. I haven't written about the Envelope system before as info about it is spread around quite a bit, but I think I will write about my interpretation of the system and the ways I have implemented the idea in my life. Thanks for the shove Mage!

» Khaleef CrumbleyNo Gravatar said: { Jul 1, 2010 - 10:07:50 }

I use PayPal for my transactions on eBay and other places where I'm purchasing from a small business or other unknown individual. However, I'll use my credit card at places such as and the like. Prepaid cards and virtual account numbers are by far the safest method!
My recent post Why You Need a Budget-

jmichelsenNo Gravatar Reply:

Thanks for your input Khaleef! I agree, the more we can keep real identity data out of the airwaves, the better. That's why PayPal has become so prevalent across the web, in my opinion. Google checkout is another that is pretty great.

KhaleefNo Gravatar Reply:

Yeah, I almost forgot about Google Checkout. I signed up for them to receive payments from clients in my business. When I accept PayPal or Google Checkout, I usually add a 5% surcharge!
My recent post Another Great CVS Shopping Trip

jmichelsenNo Gravatar Reply:

That's a great idea when doing business! The fees really cut into profit and make selling online almost not worth it unless you can fight back in some way or another.

» MattNo Gravatar said: { Jul 1, 2010 - 12:07:51 }

My preference is for use of a credit card. The credit card companies are far better than PayPal when handling a dispute and the $0 fraud liability policy. PayPal is only as good as the password chosen, which most people are not very smart about. PayPal's investigations and fraud protections are horrible. If your PayPal is hacked, they can't just send you a new one. And they hold your funds during the investigation.

jmichelsenNo Gravatar Reply:

Matt, that is a great point, the hassle factor. I know I have dealt with PayPal on the sellers side and their policies were very screwy, customer service sucked and overall I was not happy with them. They do have a password + security keyfob option that adds more security but is an additional pain in the butt to use. PayPal really should increase their security requirements on their passwords, because most people don't know any better.

» PixelNo Gravatar said: { Jul 4, 2010 - 08:07:08 }

I agree Mage, too, and I also use the Paysafecard. There aren't additional fees and I think that it's safer to use a prepaid card instead of a service, where you have to pay additional fees and where you also have to use your credit card.
I'm also receiving some phishing emails where people want that I put my Paypal account-data in the form. So if I'd use Paypal I'd to spend additional money and risk to be a victim of frauds.

DunjaNo Gravatar Reply:

I have to agree with you Pixel. Online shopping never was this easy and painless B) I wonder why not many know about it… Paysafecard is a revolutionary thing, don't you think?
No more worries about frauds and scams that were everyday trouble with cc and pp… at least to me.

jmichelsenNo Gravatar Reply:

A buddy of mine just talked about using an old debit card connected to an empty account sort of like a Paysafecard, although I don't think it's quite the same thing or as safe and I too wonder why I have never heard of them before..maybe they need to improve their marketing strategy 🙂

blinkengoNo Gravatar Reply:

It's safe and fast, but not many sites support them – yet. Here comes that marketing strategy I guess. I heard about it from a friend and got one as a gift to try it.
What I really like is that you don't have to give any personal info if you don't like to. It's unlike anything I used for online purchases -well, it's similar to coupons and vouchers…
And even debit card needs to be active and needs your bank account… so it's not that alike to this thing.

jmichelsenNo Gravatar Reply:

I think that is a huge plus, especially in our current economic situation and with proper marketing, the pay method could be accepted everywhere and netcrime could fade into memory. Maybe one day we will see it take off, or be endorsed by the government or something 🙂

blinkengoNo Gravatar Reply:

"netcrime could fade into memory"
That's exactly what I was thinking. But I must say not many think that way. I think that CHANGE is what is bothering them. A fact that there might be a better solution – but new, and that freaks out many who are used to paying other way… that's psychology now.
And concerning that blogging, I've sent you request on Facebook, as I couldn't find other way to contact you Jesse.
Take care and talk soon. Cheers!

jmichelsenNo Gravatar Reply:

It's a nice thought, huh 🙂 I agree that the change is what actually takes the effort. The idea of change is frightening to many people

blinkengoNo Gravatar Reply:

Yes 'tis! May i steal it? :p
Change is inevitable… in all things and all times. Every morning we wake up we are changed compared to yesterday. It's a fact. I never understood that kainotophobia in people, and I try to understand pretty much everything. I see PSC system as a revolution, so (thanks to you as well) I'll start spreading some good words 🙂 Maybe they will travel fast and people will see it's a good thing 😉

jmichelsenNo Gravatar Reply:

I look forward to seeing your vision play out. More people need to know about alternative systems and if they don't spread the word about their company themselves, someone has to do it for them 🙂

blinkengoNo Gravatar Reply:

I actually had some busy days behind me, but tomorrow I have a whole day just for that Paysafecard blogging. I hope it will work as well, and I'm so thankful for your help. Those videos sorted out a lot of my questions. 😉

jmichelsenNo Gravatar Reply:

Glad I could help!

blinkengoNo Gravatar Reply:

I'd like to hear your opinion as soon as I get this published 😉 We'll talk soon

jmichelsenNo Gravatar Reply:

Ya those phishing emails have been going around since PayPal was created. They really should do something more to stop them or at least offer more info about avoiding them and/or training to spot the fakes. I will have to do some looking into these Paysafecard's as they sound like great middle ground between too convenient and too troublesome.

blinkengoNo Gravatar Reply:

Concerning Paysafecards – Yes, you said it right 🙂 It's a great middle ground. The only trouble that I found with it is that I have to go out and buy some more 😀 Hey, maybe I could write a post about it? What do you think? B) It's a nice way to meet more buddies :p [and yeah, build more points on this site 😉 ]
and PayPal lost my trust in the very beginning of it. Plus all those fees and stuff about privacy, which is never enough these days, no matter what you do. Phishing became everyday issue for many.

jmichelsenNo Gravatar Reply:

I'm always up for a guest post especially one written from experience! It could be beneficial to other readers. Feel free to use my contact form to start an email conversation with me to get things started.

» DunjaNo Gravatar said: { Jul 8, 2010 - 09:07:41 }

Typically, the person will write the name and average cost per month of a bill on the front of the envelope. Then, either once a month or when the person gets paid, he or she will put the amount of money on the front in the envelope. When the bill is due, the money is taken out in cash and the bill is paid.

This prevents the person from spending the money out of their pocket or bank account, because it is already allocated to the bill.

» LauraNo Gravatar said: { Aug 2, 2010 - 04:08:17 }

Similarly to Kahleef, I also use my Paypal account expressly for eBay. My credit card I use for all my other online purchases.
My recent post How to Negotiate Lower Credit Card Interest Rates

Jesse MichelsenNo Gravatar Reply:

I actually use PayPay whenever I can, if and only if Google Checkout is not available..PayPay has convenience down, for sure.

» NancyNo Gravatar said: { Aug 10, 2010 - 09:08:46 }

These are great ways to pay. The most important thing is do not forget to pay your debts. defferent companies are now being very strict on late payments and little mistake can cost you alot of money.

Jesse MichelsenNo Gravatar Reply:

Absolutely great point Nancy, it's best to keep really good tabs on all your payments regardless of how you are paying them. Any lapse will really hurt your credit score, and companies are being very gray on grace periods now.

» EdNo Gravatar said: { Dec 12, 2010 - 01:12:40 }

Great Article! I rather use paypal, since I’ve been using them for more than 10 years and have never had a single issue. If I find a purchase that I didn’t make, it’s very easy to get the money added back into your account also. I have a paypal card, and use it every where just like I would use a credit card or a bank debit card.

Jesse MichelsenNo Gravatar Reply:

How have you liked the PayPal card so far? I believe it has a rewards program, or cash back doesn’t it?

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