Prepaid credit cards

Prepaid cards

A prepaid credit card is not a true credit card, since no credit is offered by the card issuer: the card-holder spends money which has been “stored” via a prior deposit by the card-holder or someone else, such as a parent or employer. However, it carries a credit-card brand (such as Discover, Visa, MasterCard, American Express, or JCB etc.) and can be used in similar ways just as though it were a regular credit card. Unlike debit cards, prepaid credit cards generally do not require a PIN. An exception are prepaid credit cards with an EMV chip. These cards do require a PIN if the payment is processed via Chip and PIN technology.

After purchasing the card, the cardholder loads the account with any amount of money, up to the predetermined card limit and then uses the card to make purchases the same way as a typical credit card. Prepaid cards can be issued to minors (above 13) since there is no credit line involved. The main advantage over secured credit cards (see above section) is that the cardholder is not required to come up with $500 or more to open an account. With prepaid credit cards purchasers are not charged any interest but are often charged a purchasing fee plus monthly fees after an arbitrary time period. Many other fees also usually apply to a prepaid card.

prepaid-card

Prepaid credit cards are sometimes marketed to teenagers for shopping online without having their parents complete the transaction.

Prepaid cards can be utilized globally. The prepaid card is convenient for payees in developing countries like Brazil, Russia, India and China, where international wire transfers and bank checks are time consuming, complicated and costly.

Because of the many fees that apply to obtaining and using credit-card-branded prepaid cards, the Financial Consumer Agency of Canada describes them as “an expensive way to spend your own money”. The agency publishes a booklet entitled Pre-paid Cards which explains the advantages and disadvantages of this type of prepaid card


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