In the last century or so, we have seen banking go cashless with the introduction of debit and credit cards. These cards allow us to conduct our daily transactions like without having us carry around large hordes of money in order to conduct these transactions. While usually, credit cards operate based on the cardholder’s spending money within a prescribed limit and then paying off that money, later on, prepaid credit cards have changed the game a little.
In a prepaid credit card, cash is loaded first into the card and then used, so you do not need to pay off the money later on. You may think that this sounds just like a debit card, but unlike a debit card, you do not need a bank account to operate a prepaid credit card. With the sudden rise in demand for such cards, you may be asking yourself if you need to have one too. If not for yourself, then these cards can also make a handy gift for your children or elderly parents so they can spend money easily. Therefore, here are the pros and cons of having the ownership of a credit card, so you can make this informed decision for yourself.
Pros of having a prepaid credit card
- Topping up these credit cards is an incredibly easy task. You do not have to visit a bank to top these cards up as it can be done via text message, the phone or even the ATM. This can prove to be a highly useful option when you are in a foreign country, and you need an immediate infusion of cash in your card.
- Unlike credit cards and debit cards hailing from different banks, prepaid credit cards have universal acceptance. Since these cards are usually issues by either MasterCard or Visa, you can use these cards at any merchant or ATM, all over the world without any hassle.
- You do not need a good credit history to purchase these cards. If for any reason, your credit score is not up to the standards of the bank, you can still go ahead and get a prepaid credit card for yourself, as it is not the bank’s money that is going to be at stake here. Since you will be putting the cash into the card, the bank will not be assessing your credit score to determine if you can get this credit card.
- With credit cards, people often run into the problem of spending beyond their means as they spend money that they would have a hard time paying off. With prepaid credit cards, you need to stick to a specified limit so you will not be able to spend more money than the amount you have already prescribed.
- Credit cards come with the hassles of monthly bills, late fees, and foreign transaction charges. With a prepaid credit card, you will not have to deal with any of those things. These cards do not charge foreign exchange fees for any purchases made abroad. Moreover, since you are using the money that you have already loaded into the card, there is no question of monthly bills.
Cons of owning a prepaid credit card
- Since these cards are not covered under Section 75 of the Consumer Credit Act, that means in the case of anything going awry with your purchase, and you will not have any kind of protection. For example, if you pay for something but do not receive it, you will not be able to get that money refunded.
- Prepaid cards usually hassle-free but one hassle even they are not free of including the many fees associated with using the card. Owning this card means paying the activation/purchase fee, an extra ATM withdrawal fee besides the usual fee charged by the machine, fee to reload money into the account, replacement fee, etc.
- Since there is no concept of revolving credit with prepaid credit cards, this card won’t be able to help you in an emergency if you have already used up all the money on the card. You can only use more money once you have loaded it into the card.
- Unlike traditional bank accounts that make you money, with prepaid credit cards, you are just letting your money sit in a place without getting any sort of advantage from it. The money in prepaid credit cards does not accrue any interest. Furthermore, since the card is based on money rather than credit, responsible spending will not affect your credit score in any way.
Before making any decision, it is important to remember that any decision you make needs to come from a place of information. Before investing in this credit card, you need to make sure that you are aware of both the advantages as well as the risks associated with it. Everything you own has some pros and cons to it, and a credit card is no exception.