PayPal foreign transaction fees are charged when a user allows PayPal to convert a foreign price into U.S. dollars during an international transaction. PayPal charges users 3%-4% of each foreign transaction simply for converting the user’s payment into a different currency. PayPal users may notice that they are being charged this extra fee, though they may not realize that they allowed PayPal to charge it.
This fee, which PayPal calls a “Currency Conversion Spread,” is not mandatory in most cases. PayPal users can sidestep the fee by choosing to pay with a credit card and manually opting to let their credit card company handle the currency exchange rather than leaving it up to PayPal.
PayPal’s currency conversion spread is simply the rate PayPal charges for changing money into the currency necessary to complete a transaction. That rate is the sum of the actual currency exchange rate that day or the day before, plus PayPal’s markup.
PayPal’s currency conversion spread is a rate of 3%-4%, depending on the type of foreign transaction. When you make a transaction with a foreign merchant or send money to someone in another currency via PayPal, PayPal operates as a currency exchange service, thus charging you this conversion fee on top of your purchase amount – unless you opt to let your credit card company handle the conversion. A credit card with no foreign transaction fee won’t charge any extra fees for international purchases.
Cost of PayPal Currency Conversion vs. Credit Card Currency Conversion
- Total Price With PayPal Currency Conversion: Price Listed + 3%-4%
- Total Price With Credit Card Currency Conversion: Price Listed + Foreign Transaction Fee (If Any)
Your credit card’s currency conversion rate is likely to be far cheaper than PayPal’s currency conversion rates.
PayPal’s currency conversion spread is the daily exchange rate plus PayPal’s markup. This is more akin to dynamic currency conversion, in which a foreign merchant offers to convert your purchase into your home currency, so that you can see what you’re paying in numbers you understand.
While that sounds like a friendly offer, WalletHub advises against accepting these offers when traveling abroad, because merchants generally inflate the conversion rate to their liking in order to earn a few extra bucks at the consumer’s expense.
Credit card currency exchange rates, on the other hand, are set daily by card networks (i.e. Visa, Mastercard, Discover, and American Express). These rates will vary depending on the day and the type of currency, but they are some of the best exchange rates out there.
Credit card foreign transaction fees include a small markup charged by the card network – typically 1% of the total 3% fee, for example. And if there’s no foreign fee on the credit card, this cost is absorbed by the card issuer.
Opting out of PayPal’s currency conversion spread, and paying with a credit card that doesn’t charge foreign transaction fees, can save you money on foreign transactions compared to PayPal’s rates. The choice may not be clear at the time of the transaction, though.
Anytime you make a foreign transaction through PayPal, you must consent to let PayPal convert your currency into the recipient’s currency before PayPal can apply their currency conversion spread fees. According to PayPal’s terms, however, the choice could be presented to you in a number of ways.
For example, a choice of which currency to use for the transaction could count as your consent in some cases. In other scenarios, PayPal will clearly ask your preference of which company converts the currency, PayPal or your credit card issuer. When the transaction is taking place, pay attention to the choices presented to you to avoid giving PayPal your consent to convert the currency.
How to Avoid PayPal’s Currency Conversion Rates
- Add your credit card information as a payment option on PayPal.
- Begin the PayPal checkout process, or initiate sending money to someone via PayPal.
- Select “Other Conversion Options” on the “Review Your Payment” page.
- Choose “Bill me in the currency listed on the seller’s invoice.” If asked which currency you’d like to pay with, choose the foreign currency. If asked who should convert the transaction, choose your credit card.
- Complete your transaction.
In most – if not all – cases, your no-foreign-fee credit card’s conversion rate will absolutely be cheaper than PayPal’s. You just won’t be able to see the total amount until your transaction posts on your credit card statement. Keep in mind that just because you can see PayPal’s converted total in U.S. dollars before you complete your transaction does not mean it will be a better deal than the credit card’s converted total.
There are lots of ways in which consumers end up paying more than they should when making purchases from foreign merchants, whether it’s online or in person. The party overcharging you could be the merchant, your credit card company, or in this case, the actual payment facilitator. Your options to avoid these charges may not always be clearly visible, either.
If you plan on making transactions abroad or online with foreign merchants, one of the best things you can do as a consumer is get a no-foreign-fee credit card. There are plenty of options, and it’s an easy way to save on international purchases.