Prepaid cards explained
By Rob Goodman
Article 1 of 5
Prepaid cards explained
Find out how prepaid cards work, and how to choose the best one for you.
Prepaid cards can be useful if you're going on holiday or you want to tighten the reins on your spending.
The idea behind them is simple – you load money on to the card and use it to withdraw cash or make purchases. Unlike credit cards, there is no borrowing facility.
Many of these cards are a cheaper option for spending abroad than most credit or debit cards, and some tourists also prefer to carry one of these rather than wads of foreign currency.
Choosing the best prepaid card
As it's not possible to spend more than the preloaded amount, you'll never have to worry about interest charges.
Prepaid card providers don't do any credit checks on applicants – there's no credit involved – so if you have a poor credit rating, this type of card is a good option.
It's important to pick the right prepaid card, as some charge you each time you top up, make a purchase or withdraw cash.
Getting the most out of your prepaid card
There are some prepaid cards that offer credit-building services, which will improve your credit score.
These cards charge a monthly fee that, after a certain period of time, will appear as a completed loan on your credit report, making lenders more likely to approve you for traditional forms of credit in the future.
However, it's worth assessing whether the advantages of possessing one of these cards are worth the fees associated with them.
Other common charges applied by prepaid card providers include:
- application fees
- top-up fees
- transaction fees
- cash machine withdrawal fees
- inactivity fees.
Find out more: How do prepaid cards work
Prepaid cards – keep an eye on your balance
Prepaid cards are issued under the Visa and MasterCard network, and can be used at most locations that accept these forms of payment.
You can preload most cards at cash machines, over the internet, via text or by phoning your provider.
However, as you can't get any credit on standard prepaid cards, you need to regularly check your balance and top up when necessary so you don't run out of funds at an awkward moment.
It's also worth bearing in mind that prepaid cards offer no protection for losses under Section 75 of the Consumer Credit Act, although those using Visa cards can still retrieve funds using the chargeback system.
- Last updated: July 2016
- Updated by: Rob Goodman