Wednesday, November 17, 2010

Why Not a Prepaid Credit Card?

Why not a pre-paid credit card? It's a well tried and tested concept after all and quite straight forward. We're all used to prepaid phone cards, prepaid gift tokens and prepaid gas and electricity meters. The prepaid credit card simply takes the same logic a further step forward, with the added novelty of it being a "credit card without debt"! For those who have struggled to keep spending on their "plastic" within reasonable bounds, prepayment could represent a heaven-sent opportunity to finally knock their domestic budget into shape.

In fact, it's probably something of a misnomer to call it a prepaid credit card, since no credit is involved and, therefore, there's never any interest to pay. Whenever you use it (in exactly the same way you would use any of your other plastic), you'll only be spending money that you've already loaded onto your prepaid card. So, there's never any danger of getting into any debt on a prepaid card.

You load money onto the card in much the same way as any other prepaid facility - namely, by cash, by bank transfer or by using another credit card. Since your prepaid credit card is also a MasterCard or Visa, you can use it anywhere that MasterCard or Visa is accepted, at home or abroad. Using it abroad, of course, would give you a very handy and rather more convenient alternative to carrying travellers' cheques - with the added reassurance that it's not going to let you overspend on your holiday money! Furthermore, if the card is lost or stolen, you can simply contact the issuing company, and they'll send a replacement.

The prepaid card offers the same protection against fraud as regular credit cards. So if you use it to shop online or over the telephone and the card's been used fraudulently, you can recover the loss. A card also offers greater safety than cash when it comes to carrying it around, so it could be an appropriate alternative for use by children or the more vulnerable (the jury's probably still out on this one though, and many issuers still limit the use of prepaid cards to those over the age of 18).

As you can imagine, the issuing companies love the idea of a prepaid card, since your use of them is practically risk-free. There's no need to check your credit status or history, so prepaid credit cards are issued more or less on demand.

So, is there a catch? Not so much a catch, as the relatively high cost at the moment of using a prepaid credit card. Because they're a relatively novel idea, competition in the market has probably not yet brought the costs as low as they might become. In the meantime, therefore, you should make your choice of card-provider on at least some of the following considerations:

* Will you be charged for simply opening a prepaid credit card account?

* Is there a monthly service charge, and, if so, what exactly do you get for it?

* Is there a charge each time you want to load credit onto the card?

* Will the places that accept your cash to top-up the card also charge for that service?

* Is there a charge for using the card or withdrawing cash on it, including internet purchases?

* Will you be charged for having the card sent to you by express delivery?

* Is there a charge for closing your account?

* Will you be charged for replacing the card, in the event that it is lost or stolen?

* Do you have to pay a fee each time the card is renewed (i.e. upon each expiry date)?

1 comment:

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