What is a Prepaid “Credit” Card?

The name says it: a prepaid card is a card on which money has been “stored” via a prior deposit by the cardholder or someone else. Therefore, if you own a prepaid card, you can only spend the balance that has been preloaded on to the card. A Prepaid Card is not a credit card, since no credit is offered by the card issuer. What then, is the difference between a prepaid card and a debit card? The prepaid card can be used in the same way as a typical credit card, since it caries a credit card brand (Visa, MasterCard, American Express or Discover) allowing you to make reservations for hotels, motels, car rentals and airline flights as well as placing orders online or over the phone, since credit cards are needed for those things

What are the advantages of a prepaid card?

• No need to worry about your credit score when applying for a prepaid card since there are no credit checks. All you’ll need to provide is information for your identity check. Nothing more. This can be a good alternative for people with a poor credit score, who have been declined for a typical credit card.
• No debt risk! You spend only the money you have, and once the money is gone, you can’t spend any more until you reload your card. You can load your card with any amount of money you want, up to the predetermined card limit, any time you want, through various ways, according to what your card issuer established.
• Prepaid cards are a good means of control for parents with teenagers, who want to manage their children’s spending, and want to teach them the importance of budgeting their money, and the advantage of spending the money they have instead of borrowing at a high interest rate, as it is the case with credit cards.
• Prepaid cards are often used by students who are studying overseas in an exchange program. Parents can load the card from the Unites States, while their children can use the card aboard. It’s also a good alternative to traveller’s cheques. They are safe and you can obtain a better rate of exchange as you spend.

Warnings

Prepaid cards have various costs and fees, and they can add up pretty fast, thus the importance of comparing issuer’s offers, and reading the small print in the terms and conditions. Here is a list of the potential costs and fees associated with a prepaid card. It’s important to evaluate the monthly costs associated with owning such a card, so you can evaluate if owning one is actually advantageous to you. We recommend you analyse the logic of each fee you’re charged with: what are you paying for, what services do you receive for this charge, do you really need these services, and is it an exaggerated charge (for example, some providers charge you every time you put money onto the card), etc.

• Card application fee
• Monthly subscription fee
• Cash loading fee either from your card issuers or the bank from where you are making the deposit
• ATM withdrawal fee
• Purchases and internet transaction fee
• Account termination fee
• Card replacement fee
• PIN replacement fee
• Card renewal fee
• Inactivity fee
• Insurance fee

Apart from different costs and fees, there is other information you have to know about the card you are about to apply for, in order to make an informed decision;

• Zero-liability protection: will you be held responsible for any fraudulent point-of-sale purchases made with your card or not?
• Expiry date: if you haven’t used the entire balance by the time your card expires, will you be able to keep the remaining money or not?
• What are the various ways you can load money onto your card (at a bank, online, via bank transfer, etc)? Is it convenient for you?

Don’t fool yourself by thinking a prepaid card can help you improve your credit score

IT CAN NOT! It is not a credit product; you have neither interest to pay, nor any monthly payment on the amount of money you used on your card. It is not borrowed money; you are spending your own money. Therefore, using a prepaid card will have no influence on your credit score.

Compare Offers

Be smart : Compare!

As with any financial service, shopping around is the key for finding the best deal for you. While comparing, don’t forget the more competition there is between providers, the more power you – as a customer – have! Contact potential card providers, and try to negotiate better terms and conditions by showing them their competitors have better offers. Since no one wants to loose a customer to their competitors, chances are your negotiations will be successful.