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Prepaid Credit Cards – What are They and How do They Work?

in Credit Cards, Travel Money

Prepaid credit cards are a cross between a debit card and a credit card, bearing some but not all features of both. Unlike a debit card, these hybrid cards do not deduct funds from the card-holder’s bank account; and unlike a credit card, they must be loaded prior to purchase with the card-holder’s own money, since they do not allow purchases to be made on credit. Unlike both types of card, prepaid credit cards are not connected to a bank account in any way. In this sense, these cards are similar to the gift cards purchasable from many stores today, except that the former are widely accepted by merchants all over the world, whereas the latter are limited to the store from which they were issued. Indeed, since many prepaid cards are issued under a major, international credit card network such as MasterCard, American Express, and Visa, you may use them anywhere that excepts cards from these companies, which is virtually everywhere.

Prepaid cards look like regular credit cards in that they are plastic cards which are usually embossed with the card-holder’s name. Since such a card offers no credit facility, you can get one without having to pass a credit check. This means that if you have a history of bad credit, you can still acquire and use a prepaid card, so long as you are able to show that the name which is to appear on the card is in fact yours!

Once you have verified your identity with official documentation such as a passport or driver’s license, you can acquire a card and then determine what amount to load onto it. When you make a purchase, the value is immediately deducted from the balance on your card. When your balance gets low, you can easily reload your card with more money, usually by one of four methods: transferring money from a bank account or other financial institution; have your paycheck directly deposited onto your card by your employer; have money from your PayPal account transferred to your card; or reload your card in a local retail store which provides such a service.

Prepaid credit cards are useful for people who prefer to avoid using banks, since the prepaid card operates without ever having to link to an active bank account. Such a card enables the card-holder to make any transaction that requires a credit card, such as the simple purchase of groceries or online goods, the payment of bills, renting a car, and booking a hotel room. Such cards are also a perfect starter card for teenagers, since there is no possibility of overspending.

Another brilliant use of prepaid cards is to circumvent expensive and time-consuming international money transfers. Just add to your prepaid account an additional card, and then send that card to a member of your family or a friend who lives overseas. When you load and reload money onto that card, the funds can be withdrawn immediately abroad, in the local currency, with only a small fee for foreign exchange. Also, when you yourself are travelling, taking a prepaid card affords you the convenience of accessing cash instantly from bank machines anywhere in the world. In addition, prepaid cards are rapidly becoming more widely accepted than travellers cheques.

Prepaid cards are available from major international credit card companies and also from reputable companies that focus solely on providing prepaid cards. Many different kinds of cards are available, and it makes sense to do some comparative research prior to settling on one card over another. All prepaid cards will have some kind of fee structure, and some will offer more diverse features than others.

Although a prepaid credit card won’t help you build your credit, it can certainly help you manage your money, and possibly even help you save some of it!