Perhaps the first thing to be said is that a prepaid credit card is something of a misnomer. If something has been prepaid, then it is not strictly speaking, of course, a "credit" transaction. But the name has caught on because prepaid "credit" cards can be used - for most intents and purposes - just like a standard credit card.
The principle behind the prepaid credit card is rather akin to the - now old-fashioned - idea of a book or record token, or a prepaid phone card. In other words, a payment is made in advance against an anticipated future purchase and, provided there are sufficient funds represented by the token or the prepaid card, the transaction can proceed without the need for any cash payment at the time of the purchase.
Prepayment is made by "loading" the card with cash paid in at the Post Office, a bank, a PayPoint or Payzone till. This can be made through an employer, a transfer through a bank, or by using a standard credit card. The prepaid card is then ready to be used in just the same way as a normal credit card would be used.
To complete a purchase, you will need to key in a PIN number at the shop counter and the amount of the transaction is deducted straight away from the balance on the card. The prepaid card can be used in the same way for shopping online.
There are a number of benefits to using a prepaid credit card:
• Perhaps the most important is the control it exercises over spending. Since all purchases are prepaid, it means that you are accumulating no debts through its use and spending is limited to however much has been pre-loaded onto the card:
• It can be a good way of controlling a child's spending, for example, with a monthly statement of how the money has been spent;
• Carrying a pre-paid card is also somewhat more convenient and safer to carry than cash;
• For similar reasons, many such cards are also an ideal alternative to travellers' cheques when travelling abroad. Some providers of prepaid credit cards now also offer currencies such as Euros and US Dollars for easier use when withdrawing the pre-loaded cash abroad. Once again, they are more convenient and probably safer than carrying local currency.
Because prepaid credit cards involve no actual spending on credit, an applicant's credit history or rating is irrelevant to the card-provider, so they will be issued without the usual credit reference checks.
Of course there are charges involved in obtaining and using a prepaid credit card and these are probably the main drawback. Some providers may charge an application fee when the card is first issued and others might charge a monthly subscription fee. There may be fees for loading the card with cash and/or fees for making purchases and withdrawing cash. If the card is lost or stolen, some providers might charge for the issue of a replacement and still other providers might charge a renewal fee when the existing card expires.
When considering just how useful prepaid credit cards might be for you and your family, therefore, it would be important to consider how much you are likely to pay for their use.
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Prepaid Credit Card
