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Paypal: Beware Sending Money as a Gift

Earlier this week, I wrote about how Popmoney [3] was now available in my Ally account and that it’s a great alternative to paying fees to Paypal to do the same thing. As it turns out, Paypal has a “Personal” option that lets you pay back your friends without paying fees. When you go to Send Money, click on the Personal tab underneath the amount and you are given several options: gift, payment owed, cash advance, living expense, and other. Sending money as a “Gift,” the very first option, reduces or completely eliminates the fee that Paypal charges the recipient. This is perfect for paying back your friends through Paypal without them dinging you for a fee.

There is one big drawback to this though, which doesn’t matter much if you intend to only repay your friends – you lose all of your fraud protection. When you send money for a purchase, you can make a claim if you don’t receive the item or you receive the wrong item. Either way, there’s some Buyer Protection involved, which you are paying for whenever that fee gets charged. The problem with paying with a Gift is that it’s you’ve gifted them the funds – you have zero protection. If you buy something on eBay and they want you to pay as a gift, don’t do it.

Gifts to friends you know are OK, gifts to eBay sellers who want to save a few bucks – run away. (plus it’s fraudulent because you aren’t really giving them a gift)