Introduction to prepaid credit cards

Introduction to prepaid credit cards

Both prepaid and virtual credit cards, have been around for a good few years now but major companies took a little longer to catch onto the ever rising demand but over the last few years consumers have enjoyed a surge in choice from companies offering much more versatile prepaid credit cards.

What is a prepaid credit card?

Typically speaking a prepaid credit card is a physical, plastic card which – as the title suggests – comes with a preloaded balance. Unlike with a credit card, you don’t pay interest and can only spend whatever you load the card with but with all the same functionality and convenience of a true credit card.

What types of prepaid credit card are there?

There are two main types, virtual and physical. With a virtual card, everything has to be loaded and spent online as there is no physical card.

A physical card is a plastic card sent by post or bought over-the-counter and can be used anywhere a Visa or Master Card (depending on which you choose) symbol is shown, either online, in shops, restaurants and so on. That said, some online providers don’t like certain prepaid cards, particularly virtual ones so please make sure the card you choose is suitable for your requirements.

What are the benefits?

Some providers of physical credit cards offer cash back deals with certain retailers, meaning you can save money as you shop without worrying about having to pay expensive credit card bills afterwards.

Many providers offer the option of second or shared cards, meaning that parents can watch what their kids are spending & loading without them necessarily having access to the online account. Thus giving parents a peace of mind and giving teenagers a cool way of becoming more independent with their money without any kind of stigma.

Most prepaid cards offer a variety of reload methods including wire, bank, credit card, and over-the-counter loads. However there are varying load fees depending on method & provider, so check the associated rates first!

Prepaid cards make great gifts for those difficult to buy for people. The over-the-counter cards seem to be the favored options as gifts and start at around $20 and go up in incrementing amounts (like iTunes vouchers).

Surely there are some down sides?

Virtual cards can only be loaded by wire, bank or credit cards (with some exceptions such as Skrill) and thus lack the versatility of a plastic card and as previously mentioned, they’re not always welcomed due to methods used during the address verification process amongst other reasons.

Some physical cards can have loading & currency conversion fees, these rates can vary quite dramatically. So as always, shop around and read the small print for any applicable fees before you register for your card. Any fees are usually given on the issuer’s website but sometimes you do need to trawl through the terms.

There are also providers who charge both an issue & a monthly fee for their cards. This is a real downside for many customers on a small budget, so look around for cards with no monthly fee.

Dormancy fees are also another issue for prepaid credit card consumers, as not everyone wants to use their card every month. A dormancy fee is charged after a disclosed period of card inactivity and serve as a potentially nasty surprise for the unwary buyer.

Some prepaid cards also have a limited expiry range, typically around 1 year before they expire. Whilst is true for the majority of the over-the-counter cards you find at kiosks and some online issuers but there are various online issues which offer a greater expiry range.

Final thoughts?

Whilst prepaid credit cards sport great versatility and convenience, both for adults and for younger members of the family; there are several negatives consumers need to consider before signing up. That said, we feel the potential benefits outweigh the possible downsides with some careful shopping. Remember, ALWAYS READ THE FINE PRINT!

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