If you are one of the millions of people that are looking for the functionality of a credit card, but want to avoid the risks that come with debt, then a Prepay credit card may be the ideal solution for you.
What is a Prepay credit card?
Basically, a prepay credit card works in a similar way to a debit card, in that you can only spend money that you have in your account (Prepay card account, rather than bank account). The most obvious benefit to prepay credit cards over debit cards is that they are, by and large, accepted anywhere that takes that brand of credit card. (MasterCard, for example)
Does a prepay credit card cost a lot?
Well, it depends how you use the card really! Here are the basics
1. Some providers charge an application fee, but not all of them do.
2. Some then charge a monthly service fee, but again, not all prepay card providers do.
3. Loading fees are sometimes also charged, but again, this is not always the case (Some providers offer both free and paid methods of topping up your card, depending on which outlet you choose to top up at)
4. Cash withdrawals – Many prepay credit card providers charge for cash withdrawals, so check this out before applying.
5. Specific transaction fees – Some providers may charge fees for specific things, such as online purchases.
Are prepay credit cards useful?
They can be. It really depends who you are, and what you want from a card. Prepay credit cards are ideally suited to those that may struggle to be approved for a standard credit card due to bad credit history. That said there are a number of other benefits:
1. Good for online purchases (Because you cannot usually spend more than you have in the account, there is less risk of hackers running you into bad debt if they got hold of your details)
2. For the similar reasons as mentioned above, these cards can be good for travelling in foreign countries, because again, you know there is a limit to the damage that anyone either stealing or copying your card can do. Also, as the card is separate to your main bank accounts, there is less chance of identity theft.
3. Some prepay credit cards are available in different currencies, making these cards ideal for travelling with.
4. Compared to debit cards, they are accepted in many more locations.
5. There is no interest charged on the balance of the credit cards, as this money is obviously yours in the first place!
6. Some parents whose children are away to university may wish to give them prepay credit cards as a backup funding source in case of emergencies. This is a great way to offer a safety buffer, without having the worry of the kids running up bad debt. For example, if you get an urgent “The electricity is about to be cut off” type of phone call, you can simply load the required amount onto their card, and they can pay the bill with the credit card at most banks. They cannot, however, run themselves into debt with the card by lavish spending on alcohol and parties.
7. To summarize, prepay credit cards are great for those with a poor credit history, people wanting to travel abroad, or for the parents of Uni students, wanting to provide a handy financial buffer.
As the offers and costs involved with prepay cards vary hugely, using a comparison website, such as creditchoices.co.uk would be highly recommended.