Prepaid Credit Cards - My Thoughts
With many people struggling with credit card debt issues, prepaid credit cards are rising in popularity. Although physically very similar to a credit card, there are some significant differences that may make them useful for certain groups of customers.
First off, prepaid credit cards do not actually offer any sort of loan or credit facility. How these cards work is that the card must first be loaded up with money before it can be used. The traditional ways of filling up a card are usually through bank transfer, debit machine, internet or telephone. When the money is added to the card, one is free to spend up to that amount on the credit card.
You might be asking yourself, if I have to go through the hassle of loading up a card by filling it up with my own money, what, if any benefit is there in doing this?
Well, one of the main advantages is that it allows one to use a credit card in transactions where credit cards cannot be used. An immediate example I can think of is e-commerce. A lot of major websites like Amazon, Futureshop, Best Buy, etc all require that you pay with a credit card.
A more important reason is that because there is no loan being extended from the bank, the approval process is simple as there is no credit check carried out. People with no credit ratings can obtain a credit card. Also, people without any credit rating - notably young adults can receive these prepaid cards as a gift. Again it's like cash, but it gives them the ability to order from websites up to the limit of the card.
Things are not all positive for these cards though. As it is not a credit/loan facility, taking on these cards will not help you establish a good credit rating. Secondly, there are usually administration or flat fee levies on things purchased with the card. These can range from 1% all the way up to 3% depending on the provider.
Overall, if your credit rating is good, I would recommend that you steer clear of these cards. However if you are under 18 or are worried about taking on additional debt, this card can be useful. However if you already have debt, if you choose to go the prepaid route, be careful about spending the card recklessly. Treat it like real money because it literally is!
First off, prepaid credit cards do not actually offer any sort of loan or credit facility. How these cards work is that the card must first be loaded up with money before it can be used. The traditional ways of filling up a card are usually through bank transfer, debit machine, internet or telephone. When the money is added to the card, one is free to spend up to that amount on the credit card.
You might be asking yourself, if I have to go through the hassle of loading up a card by filling it up with my own money, what, if any benefit is there in doing this?
Well, one of the main advantages is that it allows one to use a credit card in transactions where credit cards cannot be used. An immediate example I can think of is e-commerce. A lot of major websites like Amazon, Futureshop, Best Buy, etc all require that you pay with a credit card.
A more important reason is that because there is no loan being extended from the bank, the approval process is simple as there is no credit check carried out. People with no credit ratings can obtain a credit card. Also, people without any credit rating - notably young adults can receive these prepaid cards as a gift. Again it's like cash, but it gives them the ability to order from websites up to the limit of the card.
Things are not all positive for these cards though. As it is not a credit/loan facility, taking on these cards will not help you establish a good credit rating. Secondly, there are usually administration or flat fee levies on things purchased with the card. These can range from 1% all the way up to 3% depending on the provider.
Overall, if your credit rating is good, I would recommend that you steer clear of these cards. However if you are under 18 or are worried about taking on additional debt, this card can be useful. However if you already have debt, if you choose to go the prepaid route, be careful about spending the card recklessly. Treat it like real money because it literally is!
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