Does PayPal Overdraft?

By Kevin Lee

Updated August 29, 2017

You don't need a computer to view PayPal account information.
i Steve Jennings/Getty Images Entertainment/Getty Images

Because PayPal is an online money management service and not a bank, it does not overdraft your account. However, as a PayPal customer, you have the option to link your PayPal account to one of your bank accounts. You can then use that bank as a backup funding source for your regular PayPal account. There are several benefits and disadvantages to linking accounts.

It's Almost Like Overdraft

It doesn’t take long to start the process that links your bank account to PayPal. Simply log in to your account and click the “Add or Edit Bank Account” button on your profile page. PayPal emails you instructions explaining how to complete the process. They will normally deposit or withdraw a few cents to verify the account is linked.

After you link your accounts, you can use PayPal to buy something that costs more than the amount of money you have in your PayPal account. That’s possible because PayPal uses money from your bank account to make the purchase when your PayPal account has insufficient funds. However, this is not an overdraft process and you do not pay fees when it happens. You also have the option to link PayPal to a credit or debit card.

Let Technology Track Your Finances

Thanks to the Internet and intelligent software, you can review your PayPal balances any time by logging in to your account. If you’re thinking about making a purchase that might exceed your available bank balance, simply check the balance before you buy anything. PayPal also enables you to view a history of all your transactions and print them out if you like. Install a PayPal mobile app, and you’re never more than a few clicks away from reviewing your balances and managing your account.

Understand the Security Risks

There is a potential risk that comes with linking bank accounts to PayPal. Assume, for example, that hackers find a way to log in to your PayPal account. If they use your account to make purchases, PayPal might transfer money from your bank to cover those purchases. Consider linking your PayPal account to a credit card instead. This gives you the ability to dispute fraudulent charges within 60 days after they occur. You get only two days to dispute a fraudulent charge someone makes on your bank or debit card account.

Shift Your Funds At Will

Unless someone sends you money, your PayPal account remains empty until you put cash in it. One way to do that is to transfer money from your bank to your PayPal account. After you link your bank to PayPal, you can transfer money between those accounts easily. It takes several days for funds to move between accounts. You might use this feature to transfer enough money from your bank into your PayPal account if you’d rather not use your bank to fund purchases that exceed your PayPal account balance.