Best ways to use PayPal et al

Alternative payment methods, like PayPal, are becoming increasingly popular with online shoppers, according to a new study by market-research firm Javelin.

In part that’s due to the current credit crunch, which has shrunk many consumers’ available credit lines, forcing them to use debit cards or these alternative payment methods, which can link to a bank account or debit card as well as to a credit card. 

We’ve discussed the dangers inherent in debit cards before. As to these alternative payments, the best way to use them, in our view, is still by linking to a credit card. By doing that, you retain the credit card’s stronger consumer protections in case of unauthorized charges or a dispute with a merchant.

Why would you want to use an alternative payment method if you’re going to link it to a credit card anyway? One reason is if you're concerned about providing your credit card number online. The alternative payment methods, including PayPal, Google Checkout, and Bill Me Later, let you avoid that. They may also be accepted by smaller merchants, such as on eBay, that don't take credit cards.

But before signing up for one of the services, consider this advice from Consumers Union, the nonprofit publisher of Consumer Reports, to maximize your protections and avoid fees:

PayPal
If you plan to use PayPal, link it to a credit card without a balance. Then pay off any balance each month to avoid interest charges on your purchases.

Google Checkout
Same advice as for PayPal. Link your Google Checkout account to your credit card and pay off the balance every month.

Bill Me Later
The major draw to sign up for Bill Me Later may be the 10 percent discount offered by some online shopping sites. But be aware that if you sign up for that discount, you are actually opening a new credit account, which will result in a “hard inquiry” on your credit file. Too many hard inquiries may have a negative impact your overall credit score, which, in turn, can affect the interest rates and terms on more important purchases like a car or home.

Bill Me Later’s protections are similar to certain ones on credit cards. You are not on the hook for unauthorized charges. For billing errors, you need to submit a written notice to Bill Me Later within 60 days of discovering the mistake. You don’t have to pay the amount in question, but finance charges will continue to accrue and must be paid if the investigation doesn’t come out in your favor.

Bill Me Later advertises “No payment for 90 days,” but there’s a catch. In order to take advantage of this well-advertised promotion without paying much more than the purchase amount, you need to make a minimum payment on time (which can be as soon as 25 days after the transaction date), and pay off the balance in full by the “90 days” due date. If you don’t pay off your balance when it’s due, you’ll be hit with a 19.99 percent interest rate, applied from the date of purchase. —Chris Fichera

Comments

[snakyjake]

I like using PayPal's Security Key for added identity protection.

"The PayPal Security Key creates random temporary security codes that help safeguard your PayPal account when you log in."

[Calvin Thomas]

I agree. I adopted Pay Pal early (10+ years ago) and linked it to my checking account. after 5-6 years of inactivity, I forgot the link. When I started using Paypal on e-bay 5 years ago, I was reminded of the link when I signed up my credit card. I hadn't had any bad experience, so I had no reason to say no, but I didn't want to pay some of the purchases right when I bought them, hence the credit card.

The second purchase I made on e-bay, I selected to pay with the credit card using Pay Pal, and everything was accepted. Pay pal reported it would debit the credit card and I was satified.

Imagine my surprise when I checked my checking account the day my mortgage payment was due and found that I was $20 short. I had been $20 over and I had not used any money... so where did it go? I found out that Pay Pal had some minor problem with the credit card, so they simply without warning pulled the $40 e-bay purchase from my checking account.
Since I caught it in time (barely) I didn't get hit with the overdraft charge or have to suffer the embarrassment of having my mortgage check bounce, but I decided I would never ever trust pay pal with my checking account again. I had to close my pay pal account, since they refused to unlink it from my checking account and I had to wait 2-3 years before I could use it again. When I did, paypal immediately wanted to link to my checking acocount again, and continues to this day to pressure me. I always say no.

[Gabe]

If you use PayPal with a credit card, PayPal charges you a fee. If you link PayPal directly to a bank account (even one with a "check card" that usually offers the same protection), PayPal doesn't charge you that fee. Why not just link it to a bank account?

[Sara Gorman, PayPal]

For purchases on eBay.com, PayPal provides PayPal Buyer Protection, which now protects buyers for 100 percent of the purchase price if they do not receive an item, or if the item is significantly not as described. This protection is provided regardless of what type of account is used to pay for the item (bank account, credit card, or stored cash). It's also important to note that PayPal does provide 100 percent protection against unauthorized charges.

[Menexis Merchant]

payment methods such as google check and paypal are becoming increasingly popular with online shoppers because these companies are for the most part trusted by shoppers. My guess is that they feel more confortable as they dont have to worry about where they information is being sent to.

Sarah is correct as I can attest to the 100% percent protection against unauthorized charges. The protection is only effective for US merchants. If the purchase comes from overseas, most often time you will not be covered under the paypal buyer protection plan.