PayPal vs. Credit Cards

As of 2013, few brick-and-mortar stores accept PayPal at the checkout counter.

As of 2013, few brick-and-mortar stores accept PayPal at the checkout counter.

PayPal is the world's most commonly used online payment service, with the Small Business Administration reporting over 100 million active PayPal accounts in the United States. Credit cards are even more common, with over 75 percent of Americans having at least one, according to PayPal and credit cards work very differently, each with its own pros and cons, so if you're wondering which to use -- or when to use one and when the other -- it's in your interest to learn about these differences.

Convenience and Availability

The Internet is PayPal's stomping ground, leading all other online payment services in use, according to the SBA. In particular, smaller businesses and individuals often accept PayPal as their preferred online payment method and might not even accept credit cards at all due to the added difficulty and expense of accepting credit -- though many companies do accept both. In the brick-and-mortar business world, meanwhile, PayPal doesn't hold a candle to credit cards. According to Intuit, about 45 percent of American businesses accept credit cards as a payment method, whereas the number of stores accepting PayPal is statistically insignificant, says a report in CNET .

Credit Card Fees and Interest

Credit cards come with many expenses, some mandatory and some preventable. The specific fees vary depending on the terms and status of your account. For example, if you maintain a balance on your card you have to pay interest on it -- though credit card companies often waive the interest for a few months as a promotional tool when you get a new card. Some of the more common credit card fees include late fees if you don't pay on time, account overcharge fees if you go over your limit, advance fees for withdrawing cash from an ATM and annual account fees simply for the privilege of having a credit card account.

PayPal Fees

Buying something via PayPal is always free; transferring money to friends or family is free if you use your PayPal balance or a linked bank account; if you use a PayPal account linked to a credit or debit card, you pay a fee of 2.9 percent of the transaction value plus 30 cents. If you sell through PayPal -- meaning your business accepts PayPal as a payment method -- you pay a fee of between 2.2 and 3.5 percent of the transaction value plus an additional charge of up to 30 cents.

Debit vs. Credit

Credit cards let you spend money you don't have. This makes credit cards useful in emergencies when you need money that you don't have, but presents a financial risk in general because you can sink into debt. According to a 2012 report on, the average credit card debt among American households with at least one credit card is almost $16,000. In contrast, PayPal, with the exception of its PayPal Extras MasterCard and its Bill Me Later plan, is primarily a debit service. This means you can only use money you already have in your PayPal account or in a linked bank account. So, unless you link to a credit card, you can't spend money you don't have, which makes PayPal less valuable than credit in emergencies, but also less of a financial risk.


Both PayPal and all major credit card companies offer conditional protection to buyers and sellers. If you buy something that doesn't arrive or arrives broken, or if you sell and ship something and the buyer claims otherwise, you can usually win reimbursement. Both PayPal and credit card companies also offer protection from identity theft. In these respects the safety question is rough a tie, though federal law limits your liability for fraudulent credit charges to $50, whereas PayPal does not have the same legal obligation. However, since PayPal is a debit service where you store money you actually own, it makes more sense to compare PayPal to a bank account, and in that comparison PayPal has a serious disadvantage. The FDIC does not insure your PayPal balance, meaning you could potentially lose your money if PayPal goes bankrupt, and PayPal can lock out your access to your money at any time or even confiscate it if it feels it has cause.

About the Author

Josh Fredman is a freelance pen-for-hire and Web developer living in Seattle. He attended the University of Washington, studying engineering, and worked in logistics, health care and newspapers before deciding to go to work for himself.

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