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Understanding Prepaid Credit Card

Writer: YashJYashJ

Various banks and financial organisations issue prepaid credit cards with pre-loaded funds for cardholders as an added benefit to customers.


Prepaid credit cards are extremely similar to standard credit cards and operate in a fairly straightforward manner.


The only significant difference between a regular credit card and a prepaid credit card is that prepaid cards allow customers to make purchases using monies on the card rather than borrowing money from banks.


Prepaid cards, like gift cards and vouchers, allow users to make purchases until money are available on their cards. Let's take a closer look at what a prepaid card is, how it works, and how to obtain one.


Features


The following items go into greater detail on what a prepaid card is:


Prepaid credit cards function similarly to gift cards in that they can be used to make purchases using the funds already on the card.

These cards are not like typical credit cards in that they do not require the user to borrow money from banks or credit card issuers in order to make payments.

Users of prepaid cards must stick to a spending limit (the maximum amount allowed on the purchase credit card) when making purchases.

For issuing a prepaid credit card, banks and credit card firms may levy a small fee to the user.

Users are not given prepaid cards based on their credit score.


Benefits


The reasons for purchasing a prepaid credit card are as follows:


  • One of the most significant advantages of a prepaid card is that it allows customers to conduct transactions without incurring debt or paying interest in the future.

  • Prepaid credit cards are not issued based on a person's credit score.

  • Cardholders can use their cards to pay for both products and services, eliminating the need to carry cash.

  • Some prepaid cards also allow users to withdraw money from ATMs.

  • Customers who use prepaid credit cards can better control their costs because they will know how much money they have available to spend for a given period of time.

  • Prepaid cards are the ideal sort of credit card for people who don't need any additional benefits.

  • Users can easily use their mobile phones to make payments with prepaid cards.

  • Prepaid credit cards can also be used as gift cards or trip cards, and they can be used to make international payments.

  • Certain employers allow employees to transfer their salaries to a prepaid credit card.


Prepaid Credit Card Types


Prepaid credit cards are available in the following varieties:

  • Once the current balance on the card has been utilised, reloadable credit cards allow customers to add more funds.

  • Non-reloadable credit cards work in the exact opposite way that reloadable credit cards do. This means that once the current balance has been depleted, these credit cards do not allow consumers to add money to the card.

  • Open system credit cards, sometimes called as open looped credit cards, are labelled with the network to which they belong. As a result of this partnership, all of these cards bear the affiliate's logo and are exclusively issued by a select banks. These cards are accepted by all stores and locations because they are open looped.

  • Closed loop credit cards, in contrast to open loop credit cards, are only accepted at associated merchant outlets. Gift cards are typically only issued to closed loop credit card holders.

  • Credit cards with a semi-open loop- Semi-open loop credit cards are a hybrid of open looped and closed loop credit cards that are accepted by different merchant outlets that are linked with the card. The majority of credit cards are only provided by retail chains or shopping malls, and they can be used at any establishment with linked brands.


Disadvantages of Using a Prepaid Credit Card


Take a look at the disadvantages of a prepaid credit card before you decide to get one for yourself.


  • A prepaid credit card cannot be used unless it is loaded with funds.

  • Prepaid cards, unlike other credit/debit cards, are not as secure and can thus be easily abused.

  • Because there is no revolving credit limit on a prepaid credit card, banks do not publish the payment history. As a result, neither your transactions nor the main credit bureaus are recorded. As a result, prepaid credit cards have no effect on a user's credit score.

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