Prepaid Credit Cards Explained
If you’ve used a store gift card in the past, then you’ll be clear, on the basis of how prepaid credit cards work. The concept is very easy to grasp: a prepaid card is already loaded with your money, so the amount that is spent using the card is controlled by yourself. These cards can normally be used everywhere that the archetype credit card is accepted.
Prepaid credits work in exactly the same way that a regular credit card works. To pay for your item or service, you swipe your card and then either enter your PIN (which is supplied with the card) or sign the receipt. The total amount of the transaction is then withdrawn from your card immediately.
The most important difference between a prepaid credit card and a standard credit card account, is that with a prepaid card, you are spending your own funds, rather than using money borrowed from a lender. Therefore, the card can only be used until the money that you have put onto your card yourself has run out. Funds can be loaded onto your prepaid card by cash at your bank or at the Post Office, via bank transfer, or via payment from another credit card.
A prepaid card looks like a regular credit card, and can be used to buy all sorts of everyday expenses, including petrol, groceries and bills. Prepaid credit cards are particularly useful, however, when you’re shopping online or overseas.
Some online retailers and service providers, such as certain airlines and hotel websites, only accept payment via credit card, and a prepaid account allows you to shop on their websites without needing an active credit card account.
The other benefit of a prepaid credit card is the flexibility it provides for certain people and situations. For example, if you’re new to a country and you haven’t yet built up a credit rating – or you have a history of bad debt, and you’re starting your credit record from scratch – a prepaid credit card could help you build your credit file.
Also, if you’re going on holidays, a prepaid credit card offers you the opportunity to load a certain amount onto your card, so you can avoid paying foreign currency exchange fees – and so you can stick to your pre-planned budget!
With prepaid credit cards you will not be subjected to credit checks, so you can usually sign up for a card immediately. Just beware for the fees: some providers charge a card application fee on top of monthly service charges, cash load/deposit fees and withdrawal/purchase fees, so its beneficial to browse around for the best credit card deal at the time.
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