What Are Prepaid Credit Cards?

Prepaid credit cards are fast becoming a popular choice because they offer the flexibility of a standard credit card without the worry of getting into debt. Essentially you would charge up your prepaid credit card with a sum of money in advance from your bank account or through a cash deposit, this is called pre-loading your card. You can do this at the Post Office, Via your bank, via debit card, at a PayPoint or even via SMS text message. Prepaid credit cards will not allow you to spend more than the cash you have already prepaid therefore preventing you form getting into debt. Prepaid credit cards have no connection to your bank account and are usually blank pieces of plastic with the credit card providers logo and information on. They do not have your name printed on the front.

In essence prepaid credit cards are very similar to debit cards but have a number of advantages. Firstly like a debit card you can’t spend more money than you have into your account. Secondly prepaid credit cards are more secure than either a debit card or standard credit card because they do not have sensitive information about you printed on them, essentially making your transaction anonymous, other than to the credit card issuer. This is excellent if you are concerned about your credit card details falling into the wrong hands.

Who Benefits From A Prepaid Credit Card?

Prepaid credit cards are an excellent option for individuals who have a poor credit history and would otherwise find it difficult getting a credit card, or for students who may struggle to get a credit card in the first instance without a credit history. Prepaid credit cards are also ideal for teenagers as they allow parents to top up with a specific amount for their child to spend and avoids the carrying of larger cash amounts, which may make them a target for criminals or bullies.

In addition parents can use prepaid credit cards to teach children and teenagers about the value of money and the importance of budgeting, in a way that has previously been reserved solely for adults, namely the use of a credit card.

For adults with a poor credit history, prepaid credit cards give you some dignity back enabling you to pay via your plastic card, rather than transporting hard cash currency around or paying by cheque, a payment method which is fast disappearing.

How Does A Prepaid Credit Card Effect Your Credit Rating?

Because your prepaid credit card is not connected to a bank account and because you would pre charge your card prior to use, owning a prepaid credit card will have absolutely no effect upon your credit rating. However that being the case, your credit rating would be affected if you failed to pay your small monthly prepaid credit card fee on time.

Prepaid Credit Card Charges

Obviously credit card issuers need to generate revenue from prepaid credit cards so instead of charging you interest on credit that you have borrowed from them they have other ways to make money from your ownership of a prepaid credit card.

Set Up Fee.

Firstly a credit card issuer may charge you an initial set up fee to cover the administration costs of creating a prepaid credit card for you. This generally ranges between £5 and £10.

Monthly Fee.

There may also be an additional monthly charge for the privilege of holding a prepaid credit card which is normally around £5 per month but can be as high as £10.

Prepaid Credit Card Transactions.

At present these are free, which means that you will not be subject to any charges for using your prepaid credit card to make a transactions, such as purchasing goods or services or paying a restaurant bill. Essentially your monthly fee incorporates this amount. However if you use your prepaid credit card to make a transaction abroad you may be charged between 2 or 4%.

Prepaid Credit Card Cash Withdrawals.

If after charging up your prepaid credit card you decide that you want to make a cash withdrawal rather than use your prepaid credit card to make a transaction, then you will be charged around £1.50 for the privilege. This is a similar charge to what you would face if you had to use some cash point ATM’s at service stations, petrol stations or public houses.

Tips For Choosing The Best Prepaid Credit Card

The numbers of prepaid credit cards are growing rapidly, mainly spurred by parents of teenagers and young adults who are keen to find better ways to encourage good financial discipline in their children as well as monitor their spending.

1. Look for Zero Set Up Charges

Prepaid credit cards will seek to charge you an initial set up fee for the privilege of having a prepaid card, but why is this the case? Our advice is to look for prepaid credit cards from credit card issuers with a zero set up charge or negotiate with them directly over the phone. After all you will be charging up the prepaid credit card with money up front, which the credit card issuer would normally have to chase up from a customer in arrears and therefore you are helping their cash flow and profit balance! In light of this why should you have to pay a set up charge? If they are still reluctant ask them if they will waive the fee if you charge if you initially pre load your card with a larger sum, like £500.

2. Look for Minimal Monthly Fees

Prepaid credit cards like to charge customers a monthly fee, arguing that they don’t earn interest from lending you money. However you must remember that a credit card issuer will already charge the business whether you make a purchase a 2.5% fee for dealing with the transaction. Why then should you also have to pay a flat rate fee to cover these costs? Ideally you should opt for a pre paid credit card with no monthly fees, or with minimal rates.

3. Look For Cheap Cash Withdrawal Fees

It has always been the case that making a cash withdrawal on any type of credit card is significantly more expensive than withdrawing the money directly from your bank account. However once again you will have preloaded the card with cash upfront and you are not borrowing the cash from the credit card issuer as is the case with standard credit cards. As such look for prepaid credit cards with low cash withdrawal charges. 50p to £1 is an excellent rate as most prepaid credit cards currently charge around £1.50.

4. Zero Transaction Fees

Think about the amount of times that the prepaid credit card is likely to be used in everyday like, from paying for tickets, making online purchases, buying food or doing grocery shopping. You do not want to be paying for each of these transactions, so look for a prepaid credit card with no transaction charges. Most prepaid credit cards will not charge you for using your prepaid credit card in this way, so avoid those credit card issuers that do, or you may see your cash balance reduce quickly.

5. Maximum Balances

Maximum balances have most likely been bought in to avoid the potential for criminals to launder stolen money or for using a prepaid credit card for other criminal purposes which would be difficult to trace, but even so they can be inconvenient. Some prepaid credit cards will not allow you to have a balance of more than approximately £3,000 which for many may be fine. However if you use your prepaid card regularly then you want to avoid having to top up frequently as this defeats the whole object of having a prepaid credit card. As such look for prepaid credit cards with high maximum balance limits.

6. International Charges

If you are purchasing your prepaid credit card for use overseas then you may want to look closely at the cost of transactions overseas. Many prepaid credit cards will charge around 2-4% for transactions made abroad, although transactions in the UK are normally free. As such you may find that this option is more expensive.

7. Zero Pre Loading Costs

Look for prepaid credit cards that do not charge you a fee for preloading your credit card with cash. Some prepaid credit cards can charge approximately 2% for this process, although many still offer a free pre loading service.

There are a large selection of pre paid credit cards to choose from and we have listed a number of these below;