What is a prepaid credit card?
A prepaid card is essentially an empty credit card that you assign money to before you can spend it.
What are the benefits of a prepaid credit card?
The biggest benefit is that you don’t get into debt as you haven’t borrowed any money. You get the advantages of having a credit card, but you’ll never spend on it and then worry about paying it back because you don’t have to. It’s not credit.
Does it cost money to have one?
There are free cards available, but many of them do have charges. It depends on the card supplier. You will probably have to pay a fee for the card and you might get charged for cash withdrawals. Some card companies also charge a monthly fee for you to have the card.
Are there any disadvantages?
You will have to pay transaction fees for putting money onto the card and withdrawing it from a cashpoint. There’s a monthly charge if you have that type of card and other fees might be payable too. Also, you can’t use the card for transactions like hotel reservations or car hire bookings. You need a normal credit card because these must be pre-authorised. This means that, for example, a car hire company can take money off you if you damage the vehicle.
A third disadvantage is the lack of protection you have through the Consumer Credit Act (Section 75). You don’t get the same protection as an ordinary credit card if you buy something faulty or the goods aren’t as described. Some cards offer limited protection, but it’s not as extensive as the Consumer Credit Act.
Are there different types?
Yes. You can have a card that is paid monthly. They are more suitable for people who use their card on a regular basis. Many of these cards offer benefits such as cashback, which is a saving you can make while you spend. These cards usually have lower transaction rates too. The other type of card is a pay-as-you-go card with higher fees.
There are also cards available that enable you to have your wages paid onto them work like a bank account. You can pay bills, including credit cards, utilities and loan agreements. Some cards will even give you an authorised overdraft.
Who uses them?
Prepaid credit cards are an ideal alternative to a credit card, especially if you have poor credit because they don’t require a credit check.
They are popular with people travelling abroad because you can pay in foreign currency and it is much safer than carrying cash. Students and young people use them too. It’s easy for a parent to top them up and it stops any temptation to overspend.
If you do want to build up your credit score, some companies offer cards that can improve it. The regular monthly payments you make to have the card will be on your credit file and show a lender that you are treating your finances responsibly.
Is it possible to use a prepaid credit card online?
Yes. It is much safer to use a prepaid credit card online because if something did go wrong, you haven’t used a card that has access to your bank or savings account.
Who issues prepaid credit cards?
They are offered by various finance companies and they will come from Visa, Mastercard or Maestro which are accepted in most places throughout the world.
How do you put money on a prepaid credit card?
You can top them up from your bank account. You will also be able to use PayZone or Paypoint outlets and Post Office branches.
Do they have limits?
When you get a prepaid card, you may have a minimum and maximum withdrawal limit. It may also have a daily cash withdrawal limit and a daily spending limit. This depends on the card supplier.
Prepaid credit cards vs. credit cards
A prepaid card uses money you’ve assigned to it beforehand while a credit card uses money you borrow from a card lender. A credit card can seem very tempting, but if you can’t pay the money back when it’s due you’ll end up stacking interest on the amount you owe. You can’t run up debts using a prepaid card.
Prepaid credit cards vs. debit cards
Prepaid cards aren’t linked in any way to a bank account; you don’t even need one to own a prepaid credit card. On the other hand, a debit card is and the money you spend comes straight out of your account. Couple a debit card with an authorised overdraft and you may be tempted to overspend which will incur bank charges.
How do I get a prepaid credit card?
Search for ‘prepaid credit cards’ and do some research online. Make sure the cards have the facilities that you need and check out the fees. Most companies will want a proof of address, but they won’t perform a credit check. When you decide on the type of card you want, read the terms carefully. If you don’t find an answer to your questions, send the company an email.