What PayPal does and who uses it
PayPal is a digital wallet and money transfer service that lets you send money to other people, pay for online purchases, and receive payments without sharing your bank account number directly. You link a bank account or credit card to PayPal, and then use your PayPal account to move money instead of entering card details every time you shop or pay someone.
Homeowners use PayPal most often to pay contractors, split household expenses with roommates or family members, or receive rent payments from tenants. It works on a computer or through the PayPal mobile app, and the person receiving money needs their own PayPal account or email address.
PayPal charges fees for some transactions but not others — sending money to friends and family in the US costs nothing if you use your bank account or PayPal balance, but paying a contractor or business typically costs 2.99% plus $0.30 per transaction. International transfers and credit card payments carry their own fees.
Key Takeaways
- PayPal requires you to create an account, link a bank account or card, and verify your identity before you can send or receive money.
- Sending money to friends and family through PayPal is free when you use your bank account or PayPal balance, but paying a business or contractor costs 2.99% plus $0.30.
- The person receiving money needs either a PayPal account or an email address on file with PayPal to collect the funds.
- PayPal holds some new accounts or large transactions for review, which can delay access to money by a few days.
- Disputes over payments can be filed through PayPal's resolution center, though the process takes time and does not always rule in your favor.
Setting up a PayPal account and linking your bank account
Go to paypal.com or download the PayPal app and click "Sign Up." You will need an email address, a password, and your full name. PayPal will ask whether you want a Personal or Business account — Personal is for individuals sending and receiving money, while Business is for people who run a company or take regular payments from customers.
After creating your account, you must link a funding source. Click "Wallet" or "Add a Card or Bank" and enter your bank account number and routing number, or your debit or credit card details. PayPal will make two small deposits to your bank account (usually $0.01 and $0.02) within a few business days. You then log back into PayPal and confirm those amounts to prove you own the account.
PayPal may ask you to verify your identity by uploading a photo of your driver's license or passport. This step is required before you can send large amounts or withdraw money. The verification usually takes a few minutes to a few hours.
Sending money to another person
Log into PayPal and click "Send Money" or the send icon. Enter the email address or phone number of the person you want to pay, then enter the amount. PayPal will show you the fee (if any) before you confirm. For friends and family in the US, choose "Friends and Family" to send money for free using your bank account or PayPal balance. Choose "Goods and Services" only if you are paying for something the other person sold or a service they provided.
The recipient will receive a notification that money is waiting for them. If they already have a PayPal account, the money lands in their account immediately or within a few minutes. If they do not have a PayPal account, they will see a link to claim the money, which usually requires them to create an account or provide a bank account to receive the funds.
Once you send money, you cannot cancel the transaction if the recipient has already claimed it. If they have not claimed it within 30 days, PayPal returns the money to your account automatically.
Receiving money from someone else
You do not need to do anything to receive money — the sender just needs your email address or phone number associated with your PayPal account. When someone sends you money, PayPal notifies you by email, and the funds appear in your PayPal balance.
To move that money to your bank account, log into PayPal, click "Wallet," then "Transfer Money," and select "Transfer to Your Bank." Choose which bank account you want the money sent to, enter the amount, and confirm. Standard transfers take one to three business days. Instant transfers are available for an additional fee (usually $0.25 to $2.00 depending on the amount) and land in your account within 30 minutes.
If you receive money marked as "Goods and Services" payment, PayPal may hold it for up to 21 days before you can withdraw it. This is PayPal's way of protecting both buyer and seller in case a dispute arises. You can see the hold date by clicking on the transaction in your activity.
Understanding PayPal fees and holds
PayPal's fee structure depends on how you send money and what you are paying for. Sending money to friends and family in the US costs nothing if you use your bank account or PayPal balance. Sending money internationally to friends and family costs 1% of the amount plus a flat fee that varies by country. Paying a business or contractor costs 2.99% plus $0.30 per transaction.
Credit card payments carry higher fees — 3.49% plus $0.30 when you use a credit card to send money to anyone. PayPal also charges fees for instant bank transfers and for converting currency if you send money to another country.
PayPal sometimes holds money in your account for review, especially if you are new, if the transaction is large, or if the recipient disputes the payment. A hold can last from a few hours to 21 days. You can see any active holds by clicking on the transaction in your activity history. During a hold, the money stays in your PayPal account but you cannot withdraw it or use it to send more money.
Disputing a payment and protecting yourself
If you sent money to someone and did not receive what you paid for, or if someone sent you money by mistake, you can file a dispute through PayPal's Resolution Center. Log into your account, click "Resolution Center," and select the transaction. Describe what happened and upload any evidence — screenshots of messages, photos of damage, receipts, or anything else that supports your claim.
PayPal will contact the other person and give them a chance to respond. If they do not respond within a set time, PayPal may rule in your favor and reverse the payment. If both sides provide evidence, PayPal reviews everything and makes a decision. This process typically takes 20 to 45 days. PayPal's decision is final and cannot be appealed through PayPal itself, though you may be able to dispute the charge with your bank or credit card company if you funded the payment that way.
To protect yourself, use "Goods and Services" payments when buying from someone you do not know well, because those transactions come with PayPal's buyer protection. For friends and family, use "Friends and Family" to save on fees, but only send money to people you trust. Never send money to someone asking you to pay upfront for a loan, investment, or prize — these are common scams.
When PayPal may not work for your situation
PayPal is not the right tool for every payment. If you need to pay a contractor or service provider who does not have a PayPal account, you will need their email address or phone number to send them an invitation first. Some contractors prefer checks or direct bank transfers and do not use PayPal at all.
If you are collecting rent from a tenant, PayPal works but comes with fees and holds that may complicate your accounting. Many landlords use specialized rent collection platforms or direct bank transfers instead. If you are splitting a large household expense, PayPal is convenient, but Venmo (which is owned by PayPal) or a similar app may be faster and have lower fees for friends.
PayPal also does not work well for very large transfers — amounts over $20,000 may trigger additional review or require you to provide documentation about where the money came from. For large payments, a wire transfer through your bank is often faster and more straightforward.
Frequently Asked Questions
How long does it take for money to show up in my PayPal account?
If the sender already has a PayPal account and sends you money, it appears in your account within minutes. If they send you an invitation to claim the money, you have 30 days to create an account or link a bank account. Once you do, the money transfers to you immediately.
Can I use PayPal without a bank account?
You can create a PayPal account and receive money without a bank account, but you will need one to withdraw the funds. You can link a debit card instead of a checking account, and PayPal will deposit money to that card when you request a transfer.
What happens if I send money to the wrong email address?
If the recipient has not claimed the money within 30 days, PayPal returns it to your account automatically. If they have already claimed it, the money is theirs and you cannot get it back through PayPal. You would need to contact the person directly and ask them to send it back.
Does PayPal report my transactions to the IRS?
PayPal reports certain transactions to the IRS on Form 1099-K if you receive over $20,000 and 200 or more transactions in a calendar year. Personal payments between friends and family are not reported, but payments for goods or services are. Keep records of all business-related payments for your taxes.
Is PayPal safe to use?
PayPal uses encryption and fraud detection to protect your account, and it offers buyer protection for "Goods and Services" payments. However, no system is completely safe. Use a strong password, enable two-factor authentication, and never share your login details or click links in unsolicited emails claiming to be from PayPal.