Could a Prepaid Visa or MasterCard be Right for You?

Mar 17th, 2008 by Kenny

What is a prepaid credit card? As generally used in the English language, “prepaid” and “credit card” are a contradiction in terms. “Prepaid” means you have paid for something before taking receipt of it and will not be receiving a bill requesting payment later. Whereas, “credit card” means that you will be placing the purchase on credit and the lender (issuing bank) will supply the funds to the merchant. Then later when you receive your billing statement from them, you will be required to pay in full or in installments. Thus the commonly used term “prepaid credit card” could be considered an oxymoron. So, it is more accurate calling these cards a Prepaid Visa or MasterCard.

A prepaid card is like a cross between a store gift card and a bank debit card. It is similar to a store gift card in that a certain amount of money has been loaded on it. It is like a bank debit card because it is accepted any place that a major credit card is honored, even online! Unlike a debit card, however, a prepaid card is not attached to a specific bank account.

There are several good reasons to use a prepaid card. First, you will not go into debt for any purchases you make. Which as an added benefit means there will be no finance charges. Many people do not have or want a bank account and so consequently, they are unable to obtain a credit card. This type of card gives them the convenience of carrying plastic instead of cash. If you have no credit or bad credit, some of these cards can aid in building or repairing your credit rating because they report to the major credit bureaus. Other ones give rewards. If you are inclined to overspend, using one of these cards can help manage your expenditures because you set the spending limit with the money you decide to load on it. Generally though, there may be a minimum transfer of $25.00 to a certain maximum amount in whole dollars depending on the issuing bank’s terms.

Besides being an alternative way for you to purchase your own items, do not forget that they can make a great gift too! Some card issuers even will put a greeting message on the card for you, like “Happy Birthday” or “Merry Christmas” along with other sayings. How about giving one to your college student for the necessities he will buy when away from home? This way he will not be able to run up the balance on a regular credit card.

Prepaid cards can be obtained at bank branches or through the Internet at the bank’s web site. But before you decide to apply for one, there are some disadvantages to a prepaid card that you should understand. As mentioned previously, these cards do not generate finance charges. However, they probably will have some other types of fees associated with their use. The fees that may be applied to the card could be application, activation, annual membership, monthly service, ATM and over-the-limit fees. Examine the card’s policy on liability protection for lost or stolen cards. Some offer zero liability. Others only provide protection if the transaction was for a signed receipt purchase and not a PIN transaction.

Many, but not all (like those used as gift cards) allow reloading with money when the funds run low. There are different methods for transferring money to your card, such as, directly at your bank branch, an ATM machine or the issuer’s web site. You can fund your card with cash; check, credit card, electronic funds transfer from a savings or checking account and even payroll.

Before acquiring a prepaid Visa or MasterCard, be sure you are aware of all the conditions that apply to it. Each prepaid card comes with different terms, benefits and fees. So, carefully compare them. Your personal situation is unique to you. It is your responsibility to ascertain which card, if any, suits your needs.