What's a Prepaid Credit Card?

When is a credit card not really a credit card?

Prepaid credit cards can give you many of the advantages of a credit card without the danger of getting seriously over your head in debt. A prepaid option is essentially a debit card that's not attached to a bank account. Instead, you 'load' the card by sending money to the issuing company (or paying at a merchant to have the money credited to your account). Then you can use the prepaid card just the way you would any other credit card to make purchases at the register, over the telephone or on the internet. Each time you make a purchase, the amount is deducted from your remaining balance. You can usually add money to your account at any time, though there's often a minimum and a maximum amount you can add at one time.

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Why would you use a prepaid credit card?

In a word, convenience. It allows you the convenience of making purchases without cash and is accepted at any merchant that accepts credit cards with the same emblem. In other words, if you have a Visa card, any merchant that accepts Visa cards will accept your prepaid card. The one major exception to that rule is those services that set up a monthly debit from your credit card - subscription services. Since the acceptance of the charge from any company is dependent on your paying money into the card account, a merchant can't be certain that the money will be there when they debit it.

It is also an excellent way to teach children and teens to handle credit responsibly. Many young adults get into trouble when they get their first credit card because of the novelty of being able to pay for things without money. If you get them into the habit of handling plastic in the same way that they handle cash - you only have so much of it - they'll be far more likely to shop carefully and handle credit as if it were real money than if their first experience is with a credit card that can spiral them into debt.

Among the many options that you can see at moneyeverything.com are prepaid credit cards from major UK providers. As always, it's important to compare rates and fees. While APR isn't a concern with prepaid credit cards, there are variances in fees charged just as there are with other credit cards. You'll pay a fee each time that you add cash to balance, for instance, and that fee varies from one provider to the next. Some will charge you for any billing questions that you might have, or for providing customer service calls. If you use your prepaid credit card as a debit card to get cash from an ATM, you may pay a fee to issuing company as well as to the ATM's bank.

You won't, however, have to worry about paying monthly bills, or about the interest rates charged if you carry a positive balance. Since the only money that's ever available to you is the money that you add to the card, you won't be running up your bills. You'll only be making it safer and more convenient to carry your money with you.

What's a Prepaid Credit Card?