What Are Prepaid Credit Cards?

Prepaid credit cards are reloadable charge cards that can be used to purchase goods and services or withdrawal cash from an automated teller machine. Because prepaid credit cards are not linked to a bank account, cash must be loaded directly onto the card before it can be used. Prepaid credit cards do not access a revolving line of credit and there are no repayment due dates. Because no money is being lent, prepaid credit cards do not require a credit check and do not affect the user’s credit rating.

What Are The Benefits Of Prepaid Credit Cards?

Prepaid credit cards are beneficial to those with poor or limited credit ratings. Since the cards are funded prior to use, there are no credit checks involved which makes them available to those who wouldn’t be considered for a regular credit card. Similarly, there are no monthly payments required, interest is never charged and the card user never goes into debt. On the other hand, a prepaid credit card can be used like a regular credit card allowing the user to make online payments and use it for retail purchases.

What Are The Drawbacks Of Prepaid Credit Cards?

Although similar to regular credit cards, there can be instances where a merchant doesn’t accept a prepaid credit card. Businesses who put a hold on a user’s card, such as car rental companies, hotels and pay-at-the-pump gas stations may not refund the hold until a few days after the final charges are cleared leaving the card user with less funds available until reconciliation occurs. And certain prepaid cards may charge fees for activation, reloading, non-activity or declined transactions.

Prepaid Credit Cards Vs. Prepaid Debit Cards

Unlike prepaid credit cards, prepaid debit cards are linked to a bank account. Therefore the user of a prepaid debit card must be eligible for checking account privileges. If the prepaid debit card is linked to a bank account with an overdraft, there is the possibility that the user can overdraw and incur interest charges. This cannot occur with a prepaid credit card as once the balance reaches zero, the card ceases to function until more funds are added.

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