Prepaid credit card are not really credit cards, but are used and accepted just like them. With this type of card, you determine the credit line by transferring the amount of money you’d like to have available into an account.
The card can then be used at retailers, online and anywhere credit cards are accepted. Finance fees are not typically charged on these accounts; however, other fees will be applied.
Fees
There will typically be no activation fee for free prepaid credit cards, or there might not be a monthly maintenance fee, but that does not mean you won’t have to pay transaction fees or reload fees.
A pay transaction fee is the fee that is charged when the card is used to buy something. The reload fee is what is charged when you add money to the account.
Other possible fees include, but are not limited to, start-up or application fees, over-limit fees, ATM fees, and a “fulfillment” fee for shipping and handling.
Benefits
One of the benefits is that you don’t have a credit card bill to pay.
If you have a poor credit record, obtaining credit can be almost impossible, but with the prepaid card, your report will show a favorable trend because you can’t over-extend or overdraw your limit.
In a bad economy, tightened credit also increases the difficulty of obtaining credit.
Unlike debit cards, which require a checking account, prepaid cards do not typically need to be tied to a consumer’s bank account. Network-branded prepaid cards bearing the American Express, Visa or MasterCard logo can be used anywhere that plastic payments are accepted.
There are no finance charges, and they can help you avoid debt since all purchases are paid for beforehand.
Prepaid cards are safer than carrying cash and internationally accepted due to the Visa and MasterCard merchant acceptance. Virtually anyone over 18 can apply and be accepted without regard to credit quality.
Reloading the card can be done online, over the phone or at any ATM worldwide.
Drawbacks
Disadvantages include not having as strict notification requirements if the card is lost or stolen as with a regular credit card. Disputing a charge becomes more involved, because there are different consumer protection laws for credit, debit and prepaid cards. With a regular card, if merchandise is defective, when the bill arrives, the consumer can refuse to pay the bill. However, when a prepaid card has been used, it’s often too late to avoid paying for it because the merchant has already been paid.
Also, you don’t have the luxury of using a credit card bank’s funds for 25 days for free. However, if the consumer has a problem with overspending, this could also be looked at as an advantage.
Research and Compare
By researching the potential cards, you can save money and prevent surprises when the fees hit. Know your fees by researching before you load an account. Check out merchandise thoroughly before actually purchasing.
Most prepaid cards are not reportable to credit reporting agencies. Applicants who are looking to improve their credit score may be better off by using a secured credit card. A secured credit card requires collateral for approval. A security deposit of a predetermined amount is needed to secure the credit card, and the security deposit generally needs to be of equal or greater value than the credit amount.