8 Things to Know About Prepaid Credit Cards
With the popularity and the wide usage of debit and credit cards, thosewho are unable or unwilling to get these cards may find it difficult to function in today’s world that is widely dependent on electronic payment. These are those referred to as the “unbanked.” Fortunately, there is an even better way to use bank cards without the drawbacks of regular cards. That alternative is a prepaid card.
A prepaid card is a looks and acts like a credit card. They are used as an alternative to money to make purchases. Prepaid cards may be debit or credit. They are both used for the same purpose of electronic payment.
Who Should Use a Pre Paid Credit Card?
Prepaid credit cards are very valuable tools to have in your wallet. The are not necessarily for everyone though. A Prepaid card is a good option if you are:
- Traveling. This is as good a reason as any to get a prepaid credit card as it’s not linked to your bank account.
- A Student. Managing your money while in high school or college is a learning process. The use of a pre paid credit card assures that you spend responsibly
- Bad Credit Score Owners. Pre paid cards do not need a credit check. This is a great way to help manage your money rather than carry around cash.
- Do not Own a Bank Account. For people who do not own a bank account, prepaid cards can act as a bank when you load it up. You can also fun a card directly through vendors.
Here are 9 things you should know about prepaid cards.
#1. No Creditis Required
If you can’t get a credit card due to bad credit or don’t like credit cards, then a prepaid card can come handy. You aren’t required to have an excellent credit score to geta prepaid card. Even people with non-existent credit history can easily obtain one. It is straightforward. Using a prepaid card is more like spending cash, which you “own.” You didn’t borrow the money and won’t be paying back to anyone. Hence, there is entirely no point determining your eligibility with your credit history, like with credit cards.
#2. Doesn’t Buildyour Credit
There is a misconception that using a prepaid card helps build your credit, but that’s not true. Using a prepaid card does not influence your credit score, whether for good or bad. It says nothing about your borrowing or repayment behavior, so there’s nothing to be reported.
If your goal is to build your credit score, then you should look at credit cards options or better still, get a secured credit card. The secured credit card works like a regular prepaid card. Only that in this case, the money you pre-pay is used as collateral in case you don’t pay your card balance. With this card, your payment history is reported to the credit bureaus.
Qualify Now for a Secured Credit Card
#3. It Works Like Bank Accounts
Prepaid cards function more like banks, managing your card is similar to managing a savings account. Just like banks, you have to make a deposit or fund your account. Each transaction you make reduces your account balance. However, unlike a regular debit card, prepaid cards aren’t tied to bank accounts. You can make withdrawals at the ATM with your card, but it is limited to the amount you have in your card.
With prepaid cards, you don’t have to worry about late payments, penalties, and finance charges. So let’s dive into facts you need to know about prepaid credit cards.
#4. Your Funds Are Protected
Prepaid cards cannot easily be hacked. If the card is successfully hacked, the level of loss will be limited to the amount on the card. However, even if the card is not issued by a bank, it still offers zero liability protection. They won’t be able to access money in your bank account as its not linked. The funds in the prepaid card are held by bank or credit union and are covered by the Federal Deposit Insurance. So if you lose your card and report to your issuer, you will most likely get a new card with your original fund in it. This makes the prepaid card less risky than debit cards. But there are two types of prepaid cards.
#5. Some Are Reloadable. Some Are Not.
Prepaid cards have multiple types. There are some cards that you can reload funds into when you have exhausted the fund in it, and there are those, which are unloadable. So if you deplete the fund on the card that is not reloadable, you would have to get a new prepaid card.
There are five options you can utilize to load the prepaid card, including;
- Transferring funds from your bank account to your prepaid card.
- Have direct deposit be sent directly onto your prepaid credit card.
- Reloading at major retail stores like Wal-Mart or Walgreens.
- Transfer money from PayPal to the prepaid card account.
- Use reload cards like Vannila or MoneyPak. There is usually a reload fee associated with this.
- Some pre paid cards allow for your tax refund to be loaded onto your pre paid card directly.
#6. Its an Excellent Way to Practice Money Management
Prepaidcards make it impossible for you to spend above your means. This is unlike credit cards that allow you to spend above your limit and can lead to reckless spending. Using a credit card if you have poor money management skill is risky. With the prepaid card, you can only access funds you have loaded in the card. It helps you hone your money management skills. It is also beneficial if you are a spontaneous or emotional buyer.
#7. No Interest Rates
If you are scared of the massive interest rates that are charged for most cards, then you can consider a prepaid card. Youdon’t have to worry about charges and rates at all. You need to load money on the card to spend with it. You can use it to buy things in the store and online. This is one advantage prepaid cards have over regular ones. Some prepaid cards also allow you to pay bills, and you can even set up automatic monthly payments. However, some fees may apply to you.
#8. Check for fees and fees schedule
Though you won’t have to pay interest on your prepaid card, it, however, comes with a variety of fees. You may be required to pay a monthly charge, ATM withdrawal fee (usually charged per transaction), and balance inquiry fee. Also, you may be charged a fee to reload additional funds to your account, as well as a fee for ACH transactions to your account, as well as monthly statementfees. This makes it essential to check the various payments and choose the card issuer with the lowest charges. Information about fees can be found by reading the “Fine Print” of the card. You can also find cards that have no monthly fees to keep the fees at the lowest.
A Quick Recap
To sum it up, you can benefit from these advantages of a prepaid credit card:
- Pre paid cards do not require bank accounts. You can deposit money straight from the financial institution the card was obtained, in person at some retail stores, through a reload card, or direct deposit.
- Your money is protected and your bank accounts are secure.
- Credit checks are not necessary, so if you have poor credit you will still qualify.
- There are no interest rates with prepaid credit cards.
- You can’t spend more cash than you actually have, because you can only use the balance on the card.
Adversely, you have to take into consideration these disadvantages:
- Prepaid credit cards can limit you in your spending ability.
- Not all shops or commerce allow you to buy with a prepaid credit card.
- You could be hit with fees associated with your card such as reloading fees, transaction fees, ATM withdraws and activation fees.
- They do not build your credit.
- Not all cards are reloadable.
Conclusively, getting a prepaid card isn’t right for everybody. But it could be a great option for you.