Using A Credit Card To Send Money On PayPal — Should You?

by Aaron Hurd

Forbes Advisor

Sunday July 18, 2021

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 Chase Freedom Flex? and the Discover it® Cash Back offer rotating categories in which cardmembers 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 includes 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). As of writing, Chase has not announced its fourth quarter cashback categories for 2021.

    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.