Prepaid Credit Card - What is Prepaid Credit Card

Banks and financial institutions offer prepaid cards, debit cards, and credit cards for the convenience of customers. As opposed to debit cards that are linked to your bank account, which consume the funds in your bank account, and credit cards that offer short-term loans, prepaid cards use the funds you have loaded onto them.

Prepaid cards are a great alternative to credit cards for people with poor credit scores and uncontrolled spending habits. Here are some advantages of prepaid cards we will discuss.

What is a prepaid card and how does it work?

A prepaid credit card, as the name suggests, is a financial tool like a debit or credit card, which utilises the funds already loaded on it. You can use your prepaid card until the loaded funds get exhausted. Later, you can top them up with funds to use again.

Generally, they are not linked to any bank account, so you need to manually put money into your prepaid card account to continue using it. You can use prepaid cards to pay for online shopping, utility bills, and more, just like debit cards and credit cards. However, you cannot use them beyond the top-up limit or the funds that are already on the card.

A prepaid card's main advantage is that it does not create debt since it cannot be used beyond the amount added to it. However, if you use a lifetime free credit card with low APRs (Annual Percentage Rate), you can enjoy various credit card benefits without incurring hefty charges. For instance, IDFC FIRST Bank offers a range of lifetime-free credit cards with low APRs starting at just 9% per annum. You can receive up to 10X rewards and several shopping, lifestyle, travel, and entertainment benefits. Explore more!

Key benefits of prepaid credit cards
 

Prepaid credit cards offer a number of benefits, such as those mentioned below.

· With a prepaid card, a cardholder can make payments without worrying about interest payments, late payment charges, or debts.

· Since credit scores are not included in eligibility criteria, they are easier approved and accessible.

· There are no hassles of carrying cash when shopping.

· Several cards also allow customers to withdraw cash at ATMs and digital banking kiosks.

· Since the money on the card is already loaded, there is no need to worry about missed payments.

· Prepaid cards are also used as gift cards and come with numerous periodic offers, discounts, and rewards from the issuing bank.

Downsides of prepaid cards
 

While there are several benefits, prepaid cards also have a few drawbacks as mentioned below.

· While credit cards and debit cards usually come with card-lost liabilities and better fraud security, a prepaid card is considered less secure than its counterparts.

· In case of loss and theft, you can easily become the victim of fraud.

· They do not affect your credit history and score so you cannot build a credit score using a prepaid credit card.

· These cards cannot be used without money being deposited into the card, so you must ensure there are adequate funds on the card before using it for payments.

If you are unable to get a regular credit card because of a low credit score, prepaid credit cards can be an option. Prepaid cards are more convenient to apply for than regular credit cards because no credit score check is required. You must, however, read the charges and terms and conditions carefully before applying.

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.