What is a Prepaid Card

Have you ever wondered what a prepaid card is? And how it differs from a credit card? There are basic differences in both, and there are similarities, too. Learning about them empowers you to choose which one is right for you and your lifestyle. Read on to learn the answers to your questions about what a prepaid card is.

A prepaid card, like a credit card, is a financial tool that allows you to make in-store and online purchases in establishments that accept your card, pay your bills, withdraw cash from an ATM and build a credit rating. Most prepaid cards and credit cards are affiliated with MasterCard and Visa, so they can be used anywhere these two global card companies are honored.

What make a prepaid card different from a credit card are the purchasing limits, the requirements to get one and the fees. With prepaid cards, you have to load and reload cash to be able to use it, and the amount you load defines the limit of your purchasing power. Credit cards have a line of credit given to the cardholders that allows them to spend up to the amount set.

Prepaid cards are easy to obtain. They don’t ask for a credit rating nor do a credit check on you. They don’t require you to have a bank account, either. They only need the basic requirements: 1) you must be at least 18 years old, 2) you must have a verifiable US address and 3) you must have a social security number. Thus, they are a fantastic option for people with bad credit and first time card applicants. And since prepaid cards report your on-time monthly payments to credit bureaus, you gradually build up a credit rating.

Credit cards ask for several documents such as bank statements and proof of income before they issue a card with a corresponding credit line. They also perform a credit check because it is in their best interest, as the money you are spending is basically a loan from them.

Prepaid cards don’t charge interest fees and overdraft fees on your purchases. However, there are one-time activation fees, monthly service charges and fees for withdrawing cash from an ATM or making balance inquiries. But they also offer options for waiving these fees. Monthly service fees are scrapped if you load a required amount or make the minimum limit on the number of purchases every month. You avoid reloading fees if you use direct deposit, and other such criteria.

Credit cards are notorious for their usurious interest rates and costly annual membership fees. This has brought many people to financial disasters and you must exercise prudence in spending if you want to avoid being in such situations.

So, what is a prepaid card? It’s a piece of plastic that will help you manage your money and control your spending. It’s a convenient item to carry around, for necessary purchases and for recreation, like going out with family or friends. It’s a handy thing to have and it’s packed with a lot of worth, financially and socially.