A quarter of Americans have used a prepaid card sometime in their life. Prepaid credit cards have risen as another way to make payments. Those who opt for this type of card are usually looking to dodge bank fees and debt. However, it’s best to take a broader look at them before signing in on them. It’s important to evaluate whether a prepaid credit card is the best option for you or should you stick with your regular rewards credit card.
What are prepaid credit cards?
Prepaid credit cards offer the same functionality as debit cards. You don’t need a bank account to apply for them. Prepaid credit card users can use the money that is in the account associated with their card.
Once you’ve signed up for a prepaid credit card, you can load some money into it via any of the following methods.
- Direct deposit
- Mobile check deposit
- Withdrawal from bank
Once you’ve loaded some money into your prepaid credit card account, you simply use it as if it were a debit account i.e. you can spend up to how much ever you loaded.
Prepaid credit cards can be used anywhere debit cards and credit cards are accepted. In addition to this, they offer theft protection similar to that provided by debit and credit cards.
However, prepaid credit cards do not have credit lines or interest rates like regular credit cards and they aren’t associated with a bank account like debit cards are. Prepaid cards are designed for people who don’t qualify for regular credit cards or simply don’t want to use them. They are convenient to use and offer most of the same features without the hassle.
Is it right for you?
Prepaid credit cards are generally used by the following types of consumers:
- Those with a low income
- Those with a poor credit history
- Those with no credit history
- Those who don’t have a Social Security Number
Another benefit people see in using prepaid credit cards is that they offer the security of spending only the money you have loaded into the account. Users don’t have to worry about accumulating debt. It offers a solution to make payments without always having cash on you. People on fixed income and teenagers usually opt for a prepaid card versus a regular credit card.
However, if you qualify for a regular credit card then it’s best to sign up for one of those. Developing good credit card habits early on will be beneficial for you in the long run. This way, if you ever do need to apply for a loan you’ll have a good credit history to show for it. Lastly, if you stick with a prepaid credit card all your life then you will definitely end up paying higher interest rates on every purchase.
If you’re looking for a card to give to your teenage kid then prepaid cards are definitely the right option. But if you plan on applying for a loan to buy a house in the future a regular credit card is the best option for you.