Best Way to Work with Paypal Sandbox

I want to put up an E-commerce site in order to test from time to time the shopping cart from the front end and work with the transaction in the backend. Working on localhost would be the cheapest way, but apparently it's impossible to do. Otherwise I have to purchase hosting to use a domain I purchased or else put the site in a folder in my hosting account. I do not like the latter idea, however, and have run into some SEO issues from having a website hosted in a folder in my hosting account.

I could block the site from being indexed either using the robots.txt file or password-protect the folder, but that may affect the way the Paypal Sandbox works.