Prepaid credit cards come loaded with funds, and the transaction process works very similarly to traditional credit cards. Unlike other types of credit cards, they require you to add funds before you can use them.
These cards target those who are new to credit or not eligible for regular credit cards. They provide a wide range of benefits, making them a tempting option. Here is everything you need to know to make an informed decision.
Advantage Over Traditional Credit Card
Here’s an overview of the benefits you can enjoy with this credit option.
- Easy to Procure: Unlike traditional credit cards, there are no credit score criteria involved to get access
- Cost-effective: Typically, you don’t have to pay any annual fee for prepaid credit cards
- Avoid Debt Accumulation: Due to the cash limit, it lowers the risk of overspending, adding to financial safety
- Free from Interest Charges: You are using your money without borrowing from the bank; hence, no interest is involved
- No Due Date Management: Taking credit from banks involves a time limit to clear bills, but this isn’t involved in prepaid credit cards
- Privacy: As compared to traditional credit cards, it requires less personal information
- Safety in Online Transactions: It limits potential losses as only the loaded balance is at risk; you can also protect yourself from fraud, making it a secure option
Taking all the points into consideration, it is a good beginner-friendly card. Some issuers also offer reward programs to earn points and incentives during transactions, making this a great option.
How Does it Work?
A prepaid card is loaded with funds from direct deposits or purchased at retailers. It is not linked to any bank. After you purchase a prepaid credit card from a financial institution or a bank, you can load it through various methods such as:
- Check or cash deposited at ATM
- Direct deposits
- Online bank transfers
Generally, you can’t spend more than the cash you load; however, some banks and financial institutions do allow overdrafts.
Types of Prepaid Credit Cards
Depending on the issuer and your needs and preferences, an array of prepaid credit cards is available in the market.
- Reloadable Cards
To add to convenience, most prepaid credit cards are reloadable. This allows you to load more funds once the allocated amount is used up.
- Non-Reloadable Cards
Reloading of funds isn’t available in such cards. Once you use all the money in the card, it doesn’t allow further purchases. Most gift cards fall under this category.
- Open Loop Cards
Also known as open system cards, they are tagged with the affiliated network whose logo they carry. These are not tied to any specific brand or store. They are accepted widely across various merchant outlets and locations approved by the issuing bank.
- Closed Loop Cards
These cards are restricted for purchases and services at affiliated merchant outlets only. Gift cards are mostly included in this category.
- Semi-Open Looped Cards
Chain retailers and shopping malls usually issue these cards. They can be used at various merchant stores and chains that have affiliation with the card issuer. For its unique features, it is also known as a hybrid card.
- Travel-Prepaid Cards
It is specifically tailored for frequent travellers. Along with other benefits, it provides ease in transactions during international travels.
- Payroll Cards
Employers use this card as a convenient and effective salary disbursement solution.
- General-Purpose Prepaid Cards
Also known as GPR cards, these are basically reloadable debit cards. They function like standard credit cards providing a convenient and secure way for various transactions.
Benefits of Prepaid Cards
Check the benefits you can enjoy with this card against other types of credit cards.
- It allows you to go cashless
- It allows spending within a limit; hence, it helps in budget planning and keeping expenses in check
- It can be used to pay salary to the employees not holding a bank account
- You can pay outstanding bills through your mobile phone using it
- Open-looped prepaid cards can also be used for ATM cash withdrawals
- It is accepted universally, making it a convenient and safer option during international travel
Prepaid cards offer freedom and flexibility, but do not allow you to build your credit score or get access to credit that helps improve your purchasing power. If you want a card that help you manage your spending responsibility while giving you access to credit, consider the One Credit Card.
This is a fantastic option with zero joining and annual fees and loads of offers from great brands. In addition, you can earn up to 5X rewards on the top two spending categories each month and pay zero fees to redeem your points. The One Credit Card App further allows you to monitor all transactions in real time and set spending limits so you can manage your card like a pro. You can also use it to block your card or generate a credit card PIN to enhance your safety. Make a move towards financial independence and apply for it now!