How to pay paypal credit with a credit card

Editorial Note: We earn a commission from partner links on Forbes Advisor. Commissions do not affect our editors' opinions or evaluations.

PayPal is a convenient way to send money to a friend or family member and was probably the largest force in changing the way we send money to other people. In 2020, 44% of survey respondents in the U.S. had used a service like PayPal to send money to friends or acquaintances in the prior 12 months.

Naturally, you might wonder if you should use a credit card to send money to another person using PayPal. After all, your credit card earns rewards—Why not earn additional cash back or transferable points when sending money?

Generally, the fees PayPal charges to send money to another person using a credit card are greater than the rewards you will earn, making it unattractive to use a credit card to send person-to-person money transfers through PayPal. There are some exceptions to this, but banks are also changing the way these transactions are processed, which might subject you to additional fees. Read on for more details.

PayPal Is Much More Than Person-to-Person Payments

PayPal checkout is integrated onto many websites and many smaller merchants use PayPal to invoice and accept payment for goods and services. Those types of transactions have a separate fee structure and are processed differently than person-to-person transactions. This article specifically covers using PayPal to send money to another person, not to pay for a purchase.

The Deal Breaker: Transaction Fees

One of the biggest drawbacks of using a credit card to send money to another person using PayPal is the processing fee. PayPal charges 2.9%, plus a fixed fee of 30 cents to process a person-to-person money transfer using a credit card. This fee can quickly eclipse any credit card rewards you might earn.

PayPal does not charge this fee for person-to-person money transfers using either your existing PayPal balance or a money transfer from your checking account.

Why Using a Credit Card Might Still Be Attractive

Despite the fee PayPal charges, there are a few cases where you could come out ahead after the credit card fee.

Credit Cards With Rotating 5% Bonus Categories

Some credit cards, such as the Chase Freedom Flex℠ and the Discover it® Cash Back offer rotating categories in which cardmembers enroll to earn 5% cash back. Categories earning bonus cash back change quarterly and have earning caps before their base rate earnings of 1% apply. Both of these cards have historically included PayPal in the bonus cash back offering.

• Discover included PayPal in its 2021 cashback calendar for Q3 (July through September).
• In 2020, Chase included PayPal in its cashback calendar during Q4 (October through December).

Welcome Bonus Spending

If you have recently applied for a credit card that offers a welcome bonus after a certain amount of required spending, it might make sense to use PayPal to send money to another person using a credit card.

Beware The Cash Advance Fee

In 2020, the New York Times reported on a change in the way that money transfer transactions are coded and processed through Visa and Mastercard. This change means that banks can now charge cash advance fees for things like person-to-person money transfers through services like PayPal and Venmo.

Since this change has been implemented, some credit card users have reported being charged a cash advance fee when sending money using PayPal. In addition, Chase has been reported to be sending notices to existing cardmembers updating their terms and conditions to include person-to-person money transfers in the list of transaction types where they charge a cash advance fee.

Bottom Line

Generally, it is not advantageous to send money to another person using PayPal and a credit card.

Unless you are using a credit card that earns 5% back on transactions at PayPal or completing a welcome bonus spending requirement, you will usually pay more in fees than you earn in rewards. In addition, with banks starting to charge cash advance fees for person-to-person payments, there is a chance that your person-to-person payment may end up costing a lot more than the 2.9% fee.

If you are looking to send money to someone using PayPal, send money using your PayPal balance or linked checking account. For PayPal alternatives, consider the five best ways to send money.

• To accept credit and debit card payments with PayPal, you need to sign up for a PayPal Business account, download the PayPal Here app and get a PayPal card reader.
• There is no long-term contract, so you can close your account at any time without penalty.
• For PayPal’s basic credit card processing services, all you pay is transaction fees. There are no setup or application fees, monthly or annual account maintenance fees, or PCI-related fees.

Accepting credit cards and debit cards as payment methods is a must for modern businesses. Fewer consumers are carrying cash than ever, so making alternative payment options available is a matter of customer satisfaction and retention. To secure more business, you need to partner with a payment processor that enables you to accept these types of payments. However, if you don’t complete a large volume of credit card transactions each month, a full-service processor might not be for you.

PayPal, the popular peer-to-peer transfer mobile application, offers credit card processing as one of its business services. This guide covers what you need to know about working with PayPal Business, the transaction rates and fees you can expect to pay, and other key considerations you should know before signing up for an account.

If you want to know more about credit card processing services, visit our best picks page for a complete buying guide and reviews of the top services on the market today.

Editor’s note: Looking for a credit card processing service for your business? Fill out the below questionnaire to have our vendor partners contact you with free information.

What is a PayPal business account?

PayPal calls it their Commerce Platform. The platform is built to service businesses of all sizes. The PayPal Commercial Platform includes a number of services and features, which will be described in detail in a moment. The business account changes the nature of the relationship with PayPal. Lines of credit and payment processing are all adjusted to better suit business needs.

To create a business account, the applicant will talk to an account specialist. Once the account is created, the platform increases access to existing PayPal customers and brings the business into the commerce network.

PayPal commerce platform services

The commerce platform is built on a bundle of services that aid businesses. Each has obvious value to businesses of any size.

Accept payments

The first major feature is the accept payments feature. As the name implies, it shows businesses how to accept payment on PayPal. This is true for online shopping, in-person purchases and phone/email buying. The account gives you access to more than just accepting PayPal payments. It also accepts Venmo and PayPal Credit with the bundle.

Make payments

Unsurprisingly, the business account comes with a “make payments” feature. The payments can be made in a few ways. The debit option is powered by Mastercard. It lets you spend from your PayPal balance and comes with rewards. The account also enables PayPal credit payments and can link to a bank account to create a third payment option.

Fraud and seller protection

Aside from payment processing, the business account offers protection services. Fraud protection aims to detect fraud and stop it in its tracks. Seller protection works to minimize claims and chargebacks. PayPal is uniquely empowered with this feature, as they see both sides of any PayPal transaction.

Capital loans

PayPal Working Capital is a business loan plan that helps you secure funding for business investments. It is paired with promotional resources and international selling to make ROI easier.

App center

The App Center grants business customers access to a number of exclusive apps. Each is capable of streamlining business operations and improving growth and prospects.

Cash flow and dispute management

PayPal business offers a resource suite that is designed to help business operations in general. The first part of the suite is cash flow management. Called “Funds Now,” the resource aims to improve flexibility with drawing and using funds.

The dispute management program streamlines dispute processing beyond the standard business resource. Business insights is an analytic resource that helps with tracking performance, shopping and optimization in general. The full power of operations streamlining can help transform small businesses.

Does PayPal offer credit card processing?

PayPal is best known for its peer-to-peer money transfers, but it also offers credit card processing services for businesses. In fact, PayPal is our best pick for mobile credit card processing services for Android devices. PayPal extends credit card payment processing services to 23 million merchants throughout the world. Coupling a PayPal Business account with the PayPal Here mobile application allows businesses to accept debit and credit card payments, both in person at the point of sale and online.

While PayPal is our best pick for mobile credit card processors for Android, it works equally well on Apple devices, including smartphones and tablets. The Apple version of PayPal includes all the features we found in our review of the Android version, so no matter what platform your small business relies on, PayPal can deliver payment processing services. [Read related article: How to Accept Credit Card Payments: A Beginner’s Guide] 

How long does it take to process credit cards?

According to PayPal, credit card payments can take up to three days to process. This is standard for most credit cards. Some transactions will process faster, but PayPal does not guarantee that transactions will be complete in fewer than three business days.

How much does PayPal charge for credit card processing?

PayPal charges competitive rates for its credit card processing services. Even if your business doesn’t accept a high volume of credit card payments, PayPal offers inexpensive rates and transaction fees that can help you start accepting debit and credit card payments from your customers. It has flat-rate pricing and pay-as-you-go terms, so it doesn’t require any long-term contractual commitments.

All of PayPal’s pricing is laid out transparently on its website. Here are the current rates that PayPal lists for its credit card processing services:

• 7% of each transaction: This rate applies to credit cards, debit cards, and contactless payments from digital wallets that you accept during in-person transactions using the PayPal Here mobile app and card reader. PayPal works with all major credit card brands and applies this same rate to each, as well as to mobile wallets like Apple Pay, Google Pay and Samsung Pay.
• 5% of each transaction plus $0.15 per transaction: This rate applies to credit cards and debit cards you manually key in or scan using the PayPal Here mobile app. You can avoid these higher fees by using a PayPal card reader to accept cards in person.
• 9% of each transaction plus $0.30 per transaction: This rate applies to debit cards and credit cards that you accept through your website or by digital invoice.
• 1% of each transaction plus $0.30 per transaction: This rate applies to Visa, Mastercard and Discover card payments that you accept through PayPal’s virtual terminal. These payments are typically accepted over the phone, by fax or through the mail.
• 5% of each transaction: This rate applies to any American Express cards you accept through PayPal’s virtual terminal, PayPal Payments Advanced or PayPal Payments Pro.

Although PayPal’s transaction fees tend to be higher than what most full-service credit card processors charge, the lack of account setup and maintenance fees easily offsets the costs and makes it a cost-effective option for small businesses that process a low volume of transactions each month. Here are the other fees you won’t have to pay with PayPal:

• No application fee or setup fee
• No monthly fee for statements and customer support
• No monthly minimum processing requirement
• No gateway setup fee
• No monthly gateway fee
• No annual fee
• No annual or monthly PCI compliance fee
• No early termination or account closure fee

However, some of PayPal’s services will cost you extra beyond the transaction rate and fee. These are optional services that cost extra:

• Chargebacks: $20 per incidence
• Recurring billing service: $10 per month
• Advanced fraud protection services: $10 per month plus $0.05 per transaction
• PayPal Payments Pro: $30 per month (this option allows you to accept payments directly on your website and includes a virtual terminal)
• Cross-border fee: 5% added to the transaction fee when you accept payments from customers outside the U.S.; 2.5% added if your cross-border payments require currency conversion

Certain businesses are eligible for special pricing with PayPal. If you fall into either of these categories, you could qualify for lower rates and transaction fees:

• Registered charities: Eligible charitable organizations are charged 2.2% of each transaction plus $0.30 for online donations. In-person donations cost the same as regular business accounts at 2.7% of each transaction.
• Businesses with transactions less than $10: These businesses may qualify for PayPal’s micropayment fees, which cost 5% of each transaction plus $0.05 per transaction.

Does PayPal have a card reader?

PayPal offers businesses several options for a card reader. You can choose a free PayPal card reader upon signing up (until June 30, 2020). Additional card readers cost extra, but some options are relatively inexpensive. It’s always wise to incorporate a card reader that works with EMV chips and contactless payment options through near-field communication (NFC) as well. Here are the card readers PayPal offers.

• PayPal Mobile Card Reader: $19.99. This model accepts magstripe cards only and plugs into the audio jack on your phone or tablet.
• PayPal Chip and Swipe Reader: $24.99. This model accepts magstripe and chip cards. It connects with your phone or tablet via Bluetooth.
• PayPal Chip and Tap Card Reader: $59.99 (or $79.99 with charging stand). This model accepts magstripe, chip and contactless credit and debit cards, and mobile payments from Apple Pay and Google Pay. It connects with your phone or tablet via Bluetooth.
• PayPal Chip Card Reader: $99.99. This reader accepts magstripe, chip and contactless cards, and mobile wallets. It’s the only model that has a screen and a built-in PIN pad. It connects with your phone or tablet via Bluetooth.

Which credit card types does PayPal process?

PayPal accepts all types of credit card brands, including the major names like Visa, Mastercard, Discover and American Express. When you sign up with PayPal, your customers will be able to use whichever brand of debit or credit card they already have, offering a versatile new payment method for your business.

Once a customer pays with their preferred credit card, you have the option to instantly transfer the funds to your bank account for a 1% fee. Regular bank transfers that take one business day are free with PayPal.

What do you do when PayPal cannot process a payment?

Sometimes PayPal will be unable to process a payment. This can occur for several reasons, such as when there isn’t enough money in a customer’s balance to complete a transaction or their card information is not up to date. The payment could also be blocked for various security reasons.

When this happens, first ensure that the customer’s information is entered correctly, especially if you are manually entering it for a card-not-present transaction. You could also ask the customer to change their funding source in PayPal for their current transaction. If these methods fail, contact PayPal customer support to resolve your issue.

PayPal credit card processing makes accepting card payments for your business easy.

With relatively low rates and few fees, PayPal makes it easy for businesses of all sizes to process credit card payments. Even if you don’t conduct a high volume of credit card transactions each month, you can still benefit from PayPal’s credit card processing services. PayPal offers a variety of card readers and is compatible with several point-of-sale solutions. It has discounted rates for registered charities and businesses that conduct a lot of small-ticket transactions, and it offers additional services for extra costs.

Credit card and debit card transactions have become ubiquitous; consumers expect businesses to accept these payment methods. To avoid falling behind in an increasingly digital marketplace, you need to partner with a credit card processor. If you want to learn more about how to choose a credit card processor, see our buyer’s guide for a complete overview of the buying process.

Can you pay a credit card with a credit card?

Can I pay a PayPal invoice with a credit card?