Undeniably, prepaid cards are very popular nowadays. A Pew survey revealed that the use of prepaid cards exploded by a staggering 50 percent from 2012 to 2014. Since they were first introduced, prepaid cards have become the ideal financial tool especially by those who don’t have access to banks.
Thanks to the enticing benefits they offer, prepaid cards have also become the preferred plastic card of many millennials. In fact, many users consider prepaid cards the ultimate alternative to the conventional bank accounts and other plastic cards like debit or credit cards.
Get to Know Your Prepaid Cards
If you are like most people, it is likely that you have heard of prepaid cards or considering getting one. If you are not familiar with prepaid cards yet but would like to make the most of it, this article is your comprehensive and easy guide to prepaid cards, one of the best financial tools available nowadays.
What are prepaid cards?
Prepaid cards look similar to other plastic cards like credit or debit cards. However, unlike the two, prepaid cards are not linked to any bank accounts. Prepaid cards have to be preloaded with money before you can use them. However, unlike credit cards, you won’t be “borrowing” money from the provider.
When it comes to prepaid cards, you will be using the money you loaded into your prepaid card. Gift cards are classified as prepaid cards. However, gift cards are designed for one time use only given that money has been loaded successfully on the card. The good thing is there are several ways to load money onto your prepaid card.
How are prepaid cards used?
Just like debit and credit cards, prepaid cards can be used for both online and merchant transactions. They can also be used for ATM withdrawals. Prepaid cards are also affiliated with established financial and credit networks.
When you use your prepaid card, the withdrawal or purchase amount will be directly deducted from the available balance on your card. In other words, your prepaid card transactions will be limited by the balance that’s on your card.
If the amount in your card won’t be able to cover your purchase, your withdrawal or purchase transaction will be declined. Prepaid cards are also considered great and effective budgeting tools as you won’t be able to spend beyond the balance on the card.
Moreover, prepaid cards are also considered dependable and secure. When doing purchase transactions or ATM withdrawals, you will be using a PIN or personal identification number to ensure the safety of your transactions.
How are prepaid cards different from credit cards?
While both plastic cards are used for purchase transactions and ATM withdrawals, they have some distinct differences. For instance, if you have a prepaid card, you need to reload money onto your card before you can use it.
The opposite is true when it comes to credit cards since you would be “borrowing” money from the bank rather than using your own money. The provider will pay for your withdrawal or purchase first, then you will be paying the provider at a later date.
Transactions that are done using your credit card are considered loans so your statement balance as well as your credit history will be reported to consumer credit bureaus. Transactions using prepaid cards will not be reported.
What to remember when choosing prepaid cards?
Prior to choosing a prepaid card, it is important that you determine how you will be using the card. For instance, will you be reloading money through deposits or secure online portals? From there, pick a card with a reloading option that’s convenient for you.