Paying for Online Purchases

Many consumers have grown to enjoy the convenience of shopping online. You can easily compare products and prices from many retailers within a short amount of time. The shipping charges are usually well worth saving the time in traffic and gas money spent shopping the old-fashioned way. Purchasing goods online is the answer to many of our shopping nightmares.

Now the question is, "What's the best way to pay for online shopping?" Let's review some of the most common choices in making online payments.

Your credit card
A credit card is an easy way to pay, and it's the safest. The risk of someone stealing your credit card number online is actually quite slim. But if it does happen, your loss is limited to $50 under the Fair Credit Billing Act, and some credit card companies increase this protection to zero fraud liability. Check your Cardholder Agreement for details on your card issuer's fraud policy.

Your credit card number is safe from hackers as long as you are shopping on a secure website. Always check the address line at the top of the page before inputting your credit card number. The website is secure if the address is preceded by https://. The "s" after the "http" indicates a secure website, and your credit card numbers will be scrambled so that hackers can't obtain it en route. There will also be a padlock symbol on your screen when you enter a secure site.

Using a credit card also protects you if the item you receive is significantly different than the advertised item, if it arrives in unsatisfactory condition, or if you don't receive the item within thirty days of placing the order (unless you agreed to a delay for a certain reason). The first step is always to contact the merchant and politely communicate your dissatisfaction; the overwhelming majority of merchants want to keep their customers happy and coming back for future purchases.

If you try to make it right with the merchant to no avail, you can dispute the purchase with the credit card company and withhold payment for the amount of the purchase. Check your card issuer's policy on handling disputes; many will want a written explanation of the reason for the dispute. Your credit card issuer will attempt to resolve the issue directly with the merchant and then notify you of the results.

As with shopping anywhere else, remember that legitimate merchants have different return and refund policies. Be sure you understand their policies before placing your order. And as with any type of business, there are scammers out there trying to make a quick buck. It's best to stick to companies you know, or test out a company with a small purchase before placing a large order.

Your debit card
The chances of someone stealing your debit card number is just as low as with a credit card, but you could risk much more if it were to happen. The Electronic Funds Transfer Act covers debit cards, and gives weaker protection than the Fair Credit Billing Act does for credit cards.

If the actual card is not lost but the debit card number is stolen, you'll have to report the fraud within sixty days of finding out about it, or you may be liable for all fraudulent charges that occur after the sixty-day period. (You'll have less time to report the loss if you lose the actual card and someone uses it.)

This doesn't sound that bad, because most people would have no problem immediately reporting fraudulent charges as soon as they receive their bank statement. But so much can happen within that time before you even get your statement to find out about it. A thief could clear out your bank account and your overdraft line-of-credit before you even know that someone has been using your debit card number.

In the time it takes for you to discover the theft of your debit card number, your monthly bills could be a mess of bounced checks and late payment fees. It may take weeks or longer to get your stolen funds replaced, and you may have to go without cash for that period.

Financial institutions are cautious of fraud stories and will have to verify the theft; they are aware that some consumers run up charges and claim to have lost their cards or had the debit card number stolen. Someone reporting legitimate fraud may have to wait out the financial institution's investigation.

And it would take time out of your day and a lot of hassle to clear up the problems caused from the theft, even if you don't permanently lose money over it. Bottom line, your debit card exposes you to too much risk if the number is stolen, so it's safer to use another form of payment for online purchases.

PayPal
PayPal first became popular as a way for Ebayers to safely pay for auction wins, and now many merchants have begun to accept PayPal as a form of payment. Set up a PayPal account by registering your checking account, debit card, or credit card with PayPal. Once registered, you won't need to pull out your credit cards ever again to make online payments with PayPal; those accounts will be kept on file. And PayPal offers a safe way to pay if you must use your debit card.

When you want to pay a merchant who accepts PayPal, simply choose that payment option at checkout and you'll be redirected to PayPal's site to complete the checkout process. You won't have to remember account numbers to use PayPal; you log in with your email address and a password.

The best thing about PayPal is that you won't give have to give out your credit card number or bank account information to every merchant you shop with; PayPal keeps that information private. You can have multiple payment accounts on file with PayPal, and you choose which account you want to pay from with each purchase. They pay the merchant for you, and take payment out of the account you designate, whether your credit card or a checking account, with or without a debit card.

The use of Pay Pal is not limited to shopping with merchants; you can send money to anyone who has an email address or phone number. Once money is sent, the recipient can transfer PayPal funds to their own checking account or request a check for the balance. Paying for merchandise, and sending and receiving money is free with PayPal.

Fraud liability gets a little cloudy with third-party payments. You must dispute purchases with PayPal within thirty days. You may also dispute the purchase directly with your credit card company, but some credit cards may consider the payment to PayPal to be the purchase, rather than the actual item you bought from the merchant. Check with your card issuer to find out how they treat fraud issues with third-party payment companies.

Bill Me Later
Bill Me Later is popping up more often as a payment choice with many online merchants. Bill Me Later is actually a credit account offered by CIT Bank. Choosing this payment option at checkout will lead you to a short credit application, and you'll receive an instant decision. If you're approved, your payment will go through and Bill Me Later will mail a billing statement at a later date. You can pay by check, or pay online through your checking or savings account.

The handy thing about Bill Me Later is that you won't have to remember account numbers when you want to pay this way; you'll be asked for your date of birth and last four of your Social Security number. Bill Me Later offers a safe and convenient way to pay for online purchases, and may be one of few options for those who don't have a credit card. Bill Me Later also offers "zero fraud liability", the same protection offered by most major credit cards.

The APR is in the area of 20%, similar to department store credit card rates. You'll have the option of paying a minimum payment or the full balance, or anywhere in between. They say they don't have a preset credit limit, but they may deny additional credit on future purchases if your balance will put you past what they're comfortable with. This may make it difficult to plan ahead for large purchases; you may do some shopping and plan on using Bill Me Later, only to find you have to pull out your credit card anyway.



Sources:
Federal Trade Commission
cuna.org
paypal.com
billmelater.com