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PayPal versus credit cards: Which is the better online payment option?

Vidhu Bajaj avatar
Vidhu Bajaj
- 9 min read
PayPal versus credit cards: Which is the better online payment option?

If you’re regularly making online payments, you’ve likely been asked to choose between checking out with your credit card details, or using PayPal. But which option is better or more secure? 

Both options offer stringent security measures that could make them equally secure in many respects. Most people tend to have a preference for what they use when purchasing online, with some people opting against shopping anywhere that doesn’t have a PayPal option, even if they use their credit card. 

While it mostly comes down to personal preference, it’s useful to understand the pros and cons of using either PayPal or your credit card when purchasing online to help you decide which is right for you.

The pros and cons of using PayPal for online transactions

PayPal is one of the world’s most trusted online payment systems that provides a secure platform where individuals and businesses can send and receive money and manage payments.

Pros of using PayPal

There are multiple advantages to choosing to use PayPal for online transactions.

Convenience

With PayPal, you can make online payments seamlessly across multiple platforms by entering your login details without putting your credit card details into multiple websites. Just log into your PayPal account and use the payment method you prefer within the account. 

Secure transactions 

When using PayPal for online transactions, your financial details are secured within the PayPal network through robust end-to-end encryption. And because PayPal works as an intermediary between you and your bank, it means your financial information is not shared with online merchants.

Fraud protection

PayPal provides 24/7 fraud monitoring to detect and prevent unauthorised activity on your account. If it picks up any suspicious activity, PayPal may place a hold on the funds until you confirm the activity isn’t fraud or the issue is otherwise resolved. 

Purchase protection

PayPal protects its users by offering a comprehensive refund policy for items that are not delivered or significantly differ from the seller's description. Additionally, PayPal covers users for any unauthorised transactions. You just need to report the transaction as unauthorised within 60 days of the transaction date.

Cons of using PayPal

Limited acceptance

Although PayPal is widely popular, not every single online store has it as one of the payment methods available, potentially limiting its usability.

A potential target for hackers 

Its popularity as a payment system also means it’s a potential target for hackers. It has been the target of hackers in the past, and its continued dominance in the online payment space will mean this won’t change. 

PayPal is constantly updating its security to help ensure customers are protected. But being an online payment platform that stores customers’ financial information comes with an inherent risk of being hacked.

Currency conversion costs

While PayPal charges nothing for its service to customers shopping in their own country using their own currency, this isn’t the case for foreign transactions. You’ll likely cop a currency conversion fee of some kind when you use PayPal for transactions in currencies other than your local one. These rates may sometimes be higher than those charged by credit cards, potentially resulting in additional costs when you use PayPal to pay for international purchases.

The pros and cons of using credit cards online

Making purchases online often comes with the need to have a credit card or at least a debit card with the credit option. With so many credit cards in the market, including rewards-based options that offer bonus points, cash backs, and other freebies, you’ll want to check all the details, including the security they offer, when deciding which credit card to get. 

Comparing different credit cards is essential to choosing the right one for your needs. When it comes to security, you’ll find most credit cards these days offer robust features to help protect any transactions. 

Most credit cards these days include EMV chip technology that’s considered more secure than the standard magnetic stripe on some cards, like standard debit cards. With an EMV chip, each transaction will have a unique code that makes it challenging for hackers to copy these details to then perform fraudulent transactions.

Pros of using credit cards

There are plenty of reasons you might choose to use a credit card for online transactions.

Encryption

You’ll find that most or all credit card transactions performed online are encrypted. This means that any data that may be transmitted during the transaction is encoded to protect it from being stolen and used elsewhere.

Fraud monitoring

Almost all credit card issuers use advanced systems to monitor transactions for any signs of suspicious activity. Such proactive monitoring can help detect and prevent fraudulent activity on your card. 

Zero liability protection

Most credit cards offer fraud protection guarantees that cover you against any unauthorised transactions made on your credit card. There may be some requirements that need to be met for you to make a claim, but the protection is there.

Purchase protection

Some credit cards offer additional purchase protection benefits, such as extended warranty coverage or price protection. These features can be useful when you use a credit card to pay for high-ticket items such as electronics. This protection offers you an alternative option if the product is defective or if you find a better price shortly after making a purchase.

Credit card fraud

Credit card fraud is on the rise, with the number of customers being unknowingly caught out increasing. Knowing this could make you think twice about using a credit card online due to the risk of cybercriminals using more and more sophisticated methods to exploit online payment systems. 

Risk of storing card details on merchant sites

Even though it seems convenient to save your credit card details on websites where you make purchases regularly, it could make your information vulnerable. You should balance the inconvenience of typing in your card details each time you make a purchase with the security of knowing your credit card details are safe before you save your details somewhere. 

Potential for debt

The ease of spending money on a credit card can sometimes lead to overspending. If you're unable to pay off your credit card balance by the due date, interest charges will kick in. 

Credit cards often come with some high interest rates, and if you’re leaving a balance on the card, you’re accruing interest which is building debt. This can then lead you down a cycle of debt accumulation which can be hard to break free from. It's important to be mindful of your spending habits and manage credit card balances responsibly to avoid falling into a debt trap.

Should you choose PayPal or credit cards for online payments?

The reality is if you’re trying to choose between using PayPal or credit cards when purchasing online, it really comes down to personal preference. Both offer pretty robust security measures to help protect your financial information and have their own advantages and disadvantages. There are, however, some key points you should consider.

Privacy and security

There are security and privacy measures in place to protect you whether you use a credit card or PayPal. PayPal offers an advantage by allowing you to make payments without sharing your financial information directly with the merchant. 

But that doesn’t mean credit card payments aren’t secure. Credit card networks use the 3D Secure protocol, which adds an additional layer of security for online credit and debit card transactions. This ensures that your sensitive information is safeguarded during online transactions, further enhancing security.

Convenience

PayPal offers a convenient checkout process that only requires you to enter your login credentials to make a payment. However, with a credit card, the more secure option is to enter your card details each time you want to check out rather than save them with the merchant and put them at risk.

For those who prioritise convenience, PayPal might be more suitable in this respect. However, it's worth noting that not all online merchants offer PayPal as an option when making a purchase, whereas credit cards are more globally accepted by all.

Rewards and benefits

Some credit cards offer rewards programs, cashback deals, or other benefits on the purchases you make using your card, perhaps with other requirements as well. If earning rewards is important to you, using a credit card might be beneficial. 

But if you prefer PayPal, you can always add your rewards-based credit card to your PayPal account, which means you can still use it for purchases but have the added convenience of the details being stored in PayPal. However, make sure to read your card’s terms and conditions to ensure you’re still eligible to collect points when using it via PayPal, as there might be some exceptions.

If you want to compare the costs of using each of these payment options, there are no fees associated with a PayPal account unless you’re transacting in a foreign currency. Credit cards, however, come with interest and often a range of other account-keeping fees or charges. Check all these details when deciding which option you prefer for your online purchases.

One benefit to PayPal that credit cards don’t have is the ability to link your PayPal account to your debit card or transaction account. This means that when you make a purchase using PayPal using your debit card or bank account, you’re using your own money, not credit. If you like to budget or struggle with controlling your spending, this may be the better option. Credit cards can lead to overspending if you’re not careful, but if you know you’re spending your money, you’re less likely to spend above your means and accumulate debt.  

Overall, both PayPal and credit cards offer secure online payment options, but they have distinct differences. Ultimately, choosing which one to use comes down to personal preferences, convenience and what’s accepted by the particular online merchant.

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Product database updated 23 Jul, 2024

This article was reviewed by Personal Finance Editor Alex Ritchie before it was published as part of RateCity's Fact Check process.

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