The Benefits of Prepaid Credit Cards

1. Introduction

Prepaid credit cards are essentially cards that hold a portion of your money in reserve. You can spend the money that is on the card until it runs out. The card cannot be spent again until funds are reloaded by the user. These cards are also known as secured cards as they are not credit card contracts but rather payment card agreements. The great thing about these cards is that they can help people control their spending and many people use them to help stay out of debt. For people who find themselves getting into a muddle with debt, this could be the rechargeable card to pull them out of the spiral. Also, this could be a great tool for those who find that their credit score is low and, in turn, that causes issues when making important purchases, for example, moving house or vehicle repairs. It could be treated as a credit builder because a lot of these cards are also easy to be approved of. If the user finds themselves getting accepted dwindle, this could boost the trust from the creditor towards the customer and may give them further financial freedom in the future. Also, it’s become more common to rent cars or use as a deposit for hotels when you’re on holiday. It can protect the balance in your current account should anything happen while you are away. So it’s not hard to see why more choice people are using the electronic top-up. It’s worth noting that prepaid cards offer the chance to fix your finances and better money management. This could be due to the fact that there are no borrowing facilities awarded or, in simpler terms, no debt. On top of that, some providers are now allowing more than one sub-card to be generated. What does this mean? It means that it could be a better way for families to budget, perhaps using them in lieu of housekeeping money. There are so many choices and opportunities with the eventually_decay.

1.1 What are prepaid credit cards?

Prepaid credit cards are a form of credit card that are a specific kind of plastic money, which are actually preloaded with a certain amount of money, through a process that is also known as “topping up”. This means that when the card is used, the user is actually spending the balance on the card. When the balance runs out, the card can be topped up. Prepaid credit cards often have the same features as a standard credit card or bank debit card, including: chip and pin security, the ability to withdraw cash from ATMs, making purchases in shops or online. They are also offered by most high street banks and can be used everywhere that accepts standard credit or debit cards, unless otherwise stated. However, the main difference between a standard credit card and a prepaid credit card is, unlike a standard credit card, the user can’t spend money that they don’t have because the card won’t work if there isn’t enough money on it. This means that prepaid credit cards don’t come with a line of credit like a standard credit card; instead, the credit limit is how much money is loaded onto the card.

1.2 How do prepaid credit cards work?

Lastly, when the user’s card has run out of funds or expired, it cannot be used anymore to make payments. However, as the card does not have any link to the user’s bank account and has not been issued by a bank, it will not affect the user’s credit history if it has not been topped up.

Every card issuer will provide different ways for users to top up their prepaid credit cards, with some giving the option to top up in a store or supermarket and others doing so only via bank transfer. Once the user’s card is loaded with funds, each transaction – either spending or topping up – is approved by the card issuer in real time. The card issuer can also keep an eye on how the user is using the card, making it easier for the user to have their spending tracked. It is up to the card holder to decide whether they want to have their spending history reported to a credit reference agency. This might be a good way to build up their credit score provided that this information is not already shared, should the user look into obtaining a credit card in the future. However, as there is no borrowing facility with a prepaid credit card, it will not help the user rebuild their credit rating if it is poor.

First and foremost, it is worth noting that prepaid credit cards work in pretty much the same way as a pay-as-you-go mobile phone. The user has to top up the card before they can spend any money. Once the user has money in their account, they can use the prepaid credit card just as they would use a normal credit card. It can be used in shops, online, over the phone, and even to withdraw cash at an ATM. However, bear in mind that some retailers may not accept prepaid cards, particularly for online and telephone purchases, and this may become an issue in the future.

2. Advantages of Prepaid Credit Cards

Last but not least, using a prepaid credit card is far safer than carrying cash which can be lost or stolen. Also, if the card got stolen, it’s very easy to report and to get a new one which is done quickly and free of charge usually, and not much hassle involved. However, for some of the advantages, such as no credit checks, users may find it a little bit more cost-effective to just get a basic bank account with a debit card, if they are eligible for one. Also, make sure that you know everything about the charges and fees, so you are not caught off guard and end up paying more than you should.

Some prepaid credit cards can also help users manage their money and easily keep track of their spending because they come with online account management. And it’s pretty much like managing a normal bank account with a debit card – you can check your balance and view your transaction history at any time and you also get a statement at the end of the month. Also, many prepaid credit cards might offer some form of a ‘savings account’ because you can earn a little bit of interest from the money that you have put on the card.

Another big advantage is that you won’t have to go through a stressful credit check to be eligible for a prepaid credit card because your credit history or rating is irrelevant. This makes it a perfect choice for people with poor or no credit history, especially if you had been declined by credit card companies or banks. Also, it can be good for people who want to avoid being entangled in debts because you can only spend what you have already loaded on the card.

The first and foremost benefit of a prepaid credit card is that it’s very convenient and widely accepted. You can use it virtually anywhere in the world, be it online, in person, or over the phone. And if you ever run out of cash when you need it most, you can always reload the card to top up the balance, usually instantly, so you don’t need to wait or have to go somewhere to get it done. Also, it’s worth noting that some prepaid credit cards might restrict you from using them in certain countries, which may not be ideal for travels. You may need to check their terms and conditions before buying or using the card if you are planning to take it abroad.

2.1 Convenient and widely accepted

First, convenience is one of the major benefits of prepaid credit cards. Because all modern prepaid credit cards are connected to major credit card networks such as Visa, MasterCard, American Express or Discover, they can be used as a payment card at any merchant that accepts the particular credit card network. For example, a prepaid Visa card can be used anywhere that accepts Visa credit cards, both online and in physical store locations. This level of convenience across a wide range of merchants is tough to be met by other forms of alternative payment methods such as store gift cards or proprietary payment networks. Also, using prepaid credit cards for online payment can be really convenient. Prepaid credit cards can be reloaded according to needs, and only the sum of money loaded onto the card can be spent, which helps in preventing financial loss and mitigating damages arising from identity theft or fraud. Also, most prepaid credit cards offer online account access to cardholders, allowing them to check their balance and transaction history through the Internet. This unique combination of convenience and online payment security makes prepaid credit cards a better choice than traditional debit cards in many circumstances. On top of that, the widespread acceptance of prepaid credit cards means big advantages in group and corporate settings as well. For example, travel or expense prepaid credit cards are issued to employees who are sent on business trips by their companies. These prepaid credit cards bear the logo of either Visa or MasterCard and can be used to make payment or withdraw cash at ATMs like any other credit cards. With such widespread utility of a prepaid credit card, flexibility is granted to both employees and employers; the employer can transfer money onto an employee’s prepaid credit card before a business trip to cover their travel expenses, and the employee can have access to the total sum of money through any merchant or ATM that accepts credit cards. The conventional alternative, which is for the employee to pay with his own money and then get reimbursed upon returning back, is less effective and efficient, as it would put financial pressure onto the employee initially and make it more difficult for the employer to control spending. Well, having to approve the expenses in advance and empower the employer to have better control over how the money is spent.

2.2 No credit check required

Another key benefit is the fact that a prepaid card does not require a credit check in order to obtain the card, and this is one of the defining reasons why some people choose this card over a credit card. This is a very important point for a lot of potential users, and is what helps a prepaid card appeal to a wide variety of users, from students to the self-employed. For example, this type of card would be a fantastic option for students as they have a low income level and may not have the best credit rating due to having little to no history of credit. Also, as there has been no credit check on the card’s application, this means that the user’s credit rating is not at risk of either being checked or damaged, which usually occurs when applying for a credit or store card. Furthermore, there is no danger of a user not being accepted due to their credit rating. On the other hand, with a credit card, it requires a good credit rating to be able to not only apply for one but also be accepted, and users’ credit rating will be further damaged if an application is rejected. Despite all these benefits, the real masterstroke of this advantage of the prepaid card is how it makes the card appealing to the vast majority of people, however with this particular point highlighting how the prepaid card can be particularly beneficial to specific types of people, such as the young, who may have a poor credit rating. This is beneficial in the sense that it helps both the young and the older generations by showing that the card can be advantageous in helping the user to manage their finances more effectively and also in preventing damage to their credit rating.

2.3 Helps with budgeting and financial control

Another advantage of using a prepaid card is that it helps people to budget and stay out of debt. This is a massive advantage especially when the card is aimed at young people and those who are new to handling money. More and more companies are aiming products at these markets in an attempt to prevent future debt and financial trouble. The design of the card and the fact that cash cannot be spent on the card means that the user is unable to go over budget. They know that any money they add to the card can only be used in the methods as outlined by the card. The advances in technology also mean that most prepaid cards (especially those that are aimed at young people) offer free text alerts to track spend. Again, this is something that simply cannot be achieved with cash. If a card is lost or stolen, it is possible to get a replacement card as long as the serial number of the card is known. It can then be used to report the card as lost and the remaining balance can be transferred to a new card. This means that the balance is as safe as it would be in a bank account. Such a luxury is not available with money or a wallet – if lost, this could be gone for good. There are also features on some cards that offer payment protection and other insurances. This almost mimics the benefits of a credit card with protection of purchases or travel. This may not be a huge selling point of the card, but it is an added bonus for the user. All this and a credit check is not needed, so the individual is guaranteed to be accepted right away, accessible as possible, to everyone. So while a prepaid card may be seen as a modern-day alternative to a piggy bank, the security and additional benefits make it so much more worthwhile and it will be the future standard to everyone that is looking to use a plastic card nowadays.

2.4 Safer than carrying cash

The fact that money loaded onto a prepaid card is not stored in a bank account means that only the money on the prepaid card is at risk if the card details are stolen. The primary danger with prepaid cards is that of theft or loss of the card itself. The safest thing to do is to report the loss or theft of the card to the issuer as quickly as possible. If this is done, the card will be blocked and it becomes impossible for a thief to spend any of the money still on a prepaid card. Replacing a lost or stolen prepaid card is a simple process and is usually free of charge. Most prepaid card issuers will transfer any remaining balance from the old card to a new one. On the other hand, any cash that is stolen is almost certainly a complete loss. Although some insurance policies do cover the loss or theft of cash, the amount covered tends to be relatively low. Also, many policies require that the loss or theft is reported to the police within a very short period of time, which is not always practical. A prepaid cardholder should always check terms and conditions carefully and consider the level of protection that comes with the card. One thing to be aware of is the possible exposure to fraud as a result of losing the card and not realizing for some time. It is recommended that if a prepaid card is lost but later found, the cardholder should not use it again because someone might have recorded the details whilst the card was lost. Instead, any remaining balance should be transferred to a replacement card and the original card should be destroyed.

3. Cost Savings with Prepaid Credit Cards

The savings with a prepaid card over a traditional credit card can begin to add up almost immediately. These cards are commonly recommended for people who don’t have a standard bank account, but even people with a regular account could benefit from using prepaid cards. First and foremost, there is no overdraft with a prepaid card. Users can only spend the funds that are loaded onto the card, so there is no risk of plunging into an unplanned negative balance. Not only does this avoidance of going overdrawn lead to better spending habits and less impulse control, but it also circumvents the overdraft charges and fees that often afflict regular bank accounts. Also, of course, as there is no credit provided with a prepaid card, there is no risk of incurring interest charges on purchases. This benefit is twofold, preventing the possibility of falling into debt and also helping to save money. Late payment fees will only add to the amount that needs to be paid off, and in some cases, for example, if the cardholder consistently fails to meet minimum payments, those charges could end up topping the original amount owed. With prepaid cards, there is simply no opportunity for interest charges to occur in the first place, so this is not, as with regular credit, an area for potential monetary waste. Another financial positive to using a prepaid card is the lack of foreign transaction or exchange fees. When the card is used abroad, the fees and charges that are normally added to the cost of purchases, perhaps without the consumer even being aware, are not applicable with prepaid cards. This means that not only can spending be monitored and controlled better, without the inflexible schedules of travelers’ cheques and without needing to carry around large amounts of local currency, but on the whole, purchases will cost the face value sum only. Domestic fees for use of a prepaid card in a foreign country can sometimes still apply, although these are often minimal or discounted for prepaid customers. Prepaid cards offer a way to enjoy the advantages of a credit card, such as the ease of online and telephone transactions and being able to make contactless payments in shops, without the risk of falling into any long-term debt.

3.1 No interest charges or late fees

The next way prepaid cards can help you save money is by preventing you from racking up expensive interest charges and late fees. This was also very interesting to me because as a parent, I have seen firsthand the struggles of trying to manage your finances around expensive credit card fees. With a prepaid card, you can only spend the money that you load on there so it is impossible to overdraw the account. This prevention of overspending could prevent you from ever having to deal with late fees. Additionally, because the card is ‘prepaid’ and the money is yours, companies are not allowing you credit like with a credit card and so there are no interest charges on any money you spend on the card. So not only will the card not cost you anything in the fees and interest department, it also comes with the added bonus of improving your credit rating. Even though you have a better chance of being approved for a prepaid card regardless of your credit history, having a prepaid card and building up a history of responsible spending and minimal risk could make all the difference.

3.2 No overdraft fees

Another significant cost saver of prepaid card use is the lack of bank overdraft fees to account for. Because prepaid credit card users may only spend the balance of financial credit already placed on their cards, the risk for overdraft fees is completely voided. According to the Pew Charitable Trust report titled “Plastic Payments: Consumer Use, Usage, and Course,” swipe fees on the card may fall as companies continue to succeed in having small businesses to switch from fixed 40 May 2016. Collections on forms of card products, including HSA credit and 62 Checklist to the Non-Discrimination Rule on page 67. Services for all operators of Michael R. Hassler Bowman and Brooke LLP lawsuits challenging provisions of Card Act. F L A C H S T A F F OPI K Waterfall independent or affinity card issuing 44 pages, published in 2017. Because overdraft fees do not apply to prepaid credit cards, it is also an excellent option for those individuals who often find themselves in such a financial position for one reason or another. It is commonly reported that banks make about $30 billion yearly across the United States for overdraft fees. Given the fact that such money is generated from consumers who more often than not have significantly less in terms of financial income than the influx, it is a methodology which has faced increasing censure in recent times. Such cards are playing a main role in helping consumers to avoid bank overdraft fees while also ensuring greater financial control in the process.

3.3 No foreign transaction fees

For example, when traditional sterling-denominated bank cards are used to buy items in the eurozone, all providers charge up to 1% of the transaction value, and MasterCard and Visa will often charge another 1% together on top of that. With many prepaid cards specifically targeting holidaymakers and boasting of no foreign transaction fees, there has never been a better time to switch to a more modern payment scheme for trips abroad.

This is possible because such cards allow users to supply the details required to make foreign transactions, just like traditional bank cards do, and the card provider can then make the exchange within its internal systems without any exchanging of currencies actually taking place. This means that the prepaid card user’s funds can be in their native currency and the provider can pay the recipient in the required foreign currency, so the user never has to pay foreign transaction fees.

With online shopping and international travel becoming increasingly widespread, another benefit of prepaid credit cards has come to the fore: no more foreign transaction fees. Just as most traditional bank cards charge various percentage fees for every foreign transaction, most prepaid card providers tend to impose similar charges if the card does not natively support the currency it is being used with. However, a subset of prepaid card providers, including certain Pockit schemes, actually bill themselves as a means of avoiding that charge altogether – a unique selling point and a very attractive offer for regular travellers or those who sometimes need to make purchases online in foreign currencies.

4. Additional Benefits and Features

The additional benefits of prepaid credit cards help direct potential consumers to these products. The advanced tracking programs that accompany prepaid credit cards give users peace of mind. Whether a consumer is keeping an eye on his or her spending or a business is tracking the costs of its employees, prepaid credit cards with this vital feature offer a slew of benefits, such as text alerts. Also referred to as text message alerts, these notifications can be sent to a consumer’s mobile phone after each use of the card. This feature is an invaluable resource for parents who give their children a prepaid credit card. By receiving a text alert, a parent can instantly see when and where the card was used. Online shopping is increasingly becoming the first choice of consumers. Prepaid credit cards can also be used for such online purchases. With prepaid credit cards, a consumer must make a deposit in order to use the card, and this deposit forms the line of credit that the issuer will use to pay a merchant. Because an owner can only spend up to the amount that has been preloaded on the card, merchants are generally willing to accept prepaid credit cards on account of the reduced risk of fraud and non-payment compared to credit cards and checks. Plenary, those individuals eligible for a prepaid credit card benefit from the advantage of having a reduced risk of overspending, given that through the additional tracking resources available and the strict division between putting down a deposit and making a purchase, the risk of incurring major interest charges is greatly diminished.

4.1 Ability to track spending

Prepaid credit cards also offer consumers the ability to track their spending, and this can be very beneficial. Unlike traditional credit cards which allow you to keep spending until you reach your credit limit, prepaid cards enable you to spend only what you’ve loaded onto the card. By checking your spending history regularly, either by telephone, post, or internet, you can monitor exactly how much you’ve added to the card and what you’ve spent. This can not only put you in a better position to assess your financial situation, but can also help you budget and avoid debt – something that often results from actively using a conventional credit card. What’s more, having the ability to track your spending is a wonderful tool for those who need to know exactly when and where their money is being spent. For example, parents who want to give their child pocket money but ensure they’re not spending on things they shouldn’t, or employers of large businesses who wish to provide their employees with a means to make essential work purchases whilst keeping an eye on their expenses, can really benefit from a prepaid credit card and the tracking features it provides. This feature and the added control it gives are additional reasons why prepaid credit cards can be a safe and successful option that may aid financial stability and balance.

4.2 Reloadable and reusable

The arrival of prepaid credit cards has enabled consumers the opportunity to access a wide range of benefits in comparison to traditional credit cards. Apart from placing expenditure management back in the hands of the cardholder, prepaid cards have an additional advantage of being reloadable and reusable numerous times. Once a prepaid card has been obtained, the cardholder has a variety of options in terms of adding credit to the card. This is all made possible due to the vast options provided by card issuers, giving the cardholder the ability to select a method which is most convenient. Users of popular cards such as Cashplus Prepaid Gold MasterCard have the advantage of being able to top up online using a debit card, on the phone, by SMS text message or at any of the 22,000 locations available in the United Kingdom. Once cash has been credited to the card, the holder has the freedom to spend it in a variety of ways since prepaid credit cards do not have any spending constraints compared to debit or credit cards. Most businesses across the United Kingdom accept prepaid cards as a mode of payment. The widespread use of prepaid credit cards has also led to the introduction of cards that can be used abroad, in the form of either a dollar or a euro card. The ability to credit the received card and then use it within various business environments ensures that prepaid cards are a viable choice for people working on planned or unplanned budgets alike.

4.3 Can be used for online purchases

They can be used for online purchases. This is really a great feature given that there are still many out there who are unclear about how to use prepaid cards on the internet. You can use your prepaid card just like a standard credit card, and this means that you can buy things online even if you do not have a standard credit card or a bank account. You can use your prepaid card to make hotel and travel reservations online, which is extremely useful if you are traveling or on holiday – or you could just use it to shop around on your favorite brands. Most of the well-known shopping websites accept prepaid cards as a method of payment, meaning that you can use your card on whatever you want. However, in the UK, by law, you have to be at least 16 years old to get a prepaid card, as opposed to some credit cards and debit cards where the minimum age is 18. In the US, the rules are a bit tighter generally – you have to be at least 18 years old to get a credit card, but you can get a prepaid card sooner than that, which is good news for teenagers and parents.