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Pre-Paid Credit Cards

Even though prepaid credit cards function and seem just like debit credit cards, there is a major difference between both in the sense that while debit credit cards draw funds from a bank’s checking account, prepaid credit cards draws money that has already been loaded on to the card .

Prepaid credit cards, also known as prepaid debit cards, are first and foremost, not credit cards. Rather, these are cards, which are already pre-loaded by the user. The user of these cards can determine the credit limit of the card by pre-loading the prepaid credit card with the amount of cash that he/she is prepared to spend. They are however called credit cards because of the fact that they are accepted everywhere that credit cards are.

The issuer of these cards provides the user the facility to carry around a bank account to which all purchases can be charged without actually having a bank account. Another major advantage of prepaid credit cards is that they help avoid debt, due to the absence of both credit purchases as well as interest charges which generally accumulate on credit cards.

Thus, prepaid credit cards are a very good option for people with bad credit, compulsive spenders or people who mismanage their payments since there is no risk of running up any debt while making saving and budgeting easier.

Prepaid credit cards took off in the 1990’s when major credit card companies realised that there was a significant portion of the US population which could not qualify for a credit card. It was to capitalize on these consumers, who could form a sizable business for these credit card companies that secure credit cards were introduced. Later on, the same gave way to prepaid credit cards where funds are loaded on to a Master or Visa card through merchant locations or online banks. The credit line for prepaid credit card is set at the amount deposited and keeps coming down with the value of purchases. Therefore, prepaid credit cards are just a means of converting hard cash into electronic currency which can be accessed via plastic cards.

Even though prepaid credit cards function and seem just like debit credit cards, there is a major difference between both in the sense that while debit credit cards draw funds from a bank’s checking account, prepaid credit cards draws money that has already been loaded on to the card .Unlike debit credit cards, prepaid credit cards also do not require the use of a PIN for commercial transactions.

Some of the main advantages of a prepaid credit card are:  

  • a prepaid credit card is widely accepted worldwide, with MasterCard and Visa merchant acceptance
  • is safe and convenient to carry
  • the user does not have to worry about debt or overdue credit card payments
  • can be reloaded with any amount of money over the phone, at ATMs or even online.
    The only disadvantage is that the holder does not have any credit to fall back on, but then, this is the reason why anyone would want to get a prepaid credit cards in the first place.

 

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