How A Prepaid Credit Card Is Different From Standard Credit Cards
A Prepaid credit card differs significantly to regular usual credit cards. Typical credit cards allow you to spend money (which you might not essentially have) before you need to pay that money back. On the other hand, prepaid cards necessitate you to load money on the card prior to spending it. Because of the fact you need to prepay your cards they help you restrict your spending to cash you actually have. In this way, it stops you from piling up a huge amount of credit card debt that you won’t have the means to pay in the future.
Some prepaid credit cards also have credit reporting facilities to help you demonstrate your credit history with some issuers reporting your monthly payments on cable, utilities and rent. With your prepaid cards, you might be charged a nominal fee in monthly installments and your card company would inform these installment payments to the credit bureaus. This helps you form a good credit payment history.
What are the benefits offered by the prepaid credit card?
Given below are some important benefits offered by pre paid credit cards that play an important role in paying off debt and making you debt free:
- No credit card debt is accumulated
As you’re prepaying your purchases with the help of a prepaid card, you’re not piling up a huge amount of credit that you might not be able to pay off in the future. You can make the need to settle credit card debt a thing of the past, which will relieve you of much of the stress associated with managing your finances.
- No interest is charged on purchases
When you use prepaid credit cards, your purchases are debited from the funds that you loaded on those cards. This is different from typical credit cards where everything you buy is subject to daily interest costs till you pay them off.
- Designed for a student budget
Some prepaid student credit cards can help you check your spending so that you can stay within your budget. Because you’d require cash available for prepaying your card, the cash you can load on your prepaid card must be only with what you can manage to spend.
- Protection from over the limit and overdraft fees
Though there are rare occasions where a manual or preauthorized deal might put you over your available balance on a prepaid credit card, most of the time, you wouldn’t be allowed to spend in excess of what is loaded on your card. This suggests that you can steer clear of costly overdraft fees and over the limit fees that often make your debt burden heavier.
Selecting the right prepaid credit card
Similar to many options that come with standard credit cards, prepaid cards can have various benefits, fees and features. It is always better to explore all your options to get the card that is most suitable for you. While selecting a card, you should compare the following elements:
- Card fees (reload fees, usage fees, setup or activation fees and inactivity fees)
- Reloading options
- Credit reporting features
- Load, spending and card limits
- ATM and cash withdrawal limits
The approval process for a prepaid visa card is simple and there is no necessity of a credit check. The cards can be reloaded online within minutes. However, the application fee is somewhat higher than usual credit cards.