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What is a Prepaid Credit Card and Why is it Preferred?

Written by adamavatar

Think of the prepaid credit card as the estranged cousin to the debit card and the credit card – the prepaid credit card is clearly related to both the credit card and debt card, but is often not heard from.

Most credit card companies like Visa and Mastercard offer prepaid credit cards, which are often used by consumers who have weakening trust in banks and, therefore do want to use debit cards, and who do not trust credit cards and do not want credit card debt, therefore choose not to use credit cards.

Prepaid credit cards are also pretty popular with parents who give it to their college students, because using a prepaid credit card is a great way to control spending. This feature is generally what attracts the cardholder to opting for a prepaid credit card over a traditional credit card.

There are some downfalls to the prepaid credit card, which include fees associated with recharging the card with money, which is not associated with traditional credit cards; however this cost is often outweighed by the financial security of knowing that you and your family is not overspending or spending money that you don’t have. Part of this is caused by the fact that if your prepaid credit is maxed out, you simply can’t make the purchase you are intending to make. This concept is different than credit cards or debit cards that often times will allow the purchase to go through, and push you to an ‘overdraft’ status without prior notice and then will assess you astronomical fees as a penalty.

Another reason that the prepaid credit card looks a lot like the debit card is because a consumer can use any ATM to withdraw or load cash to or from the prepaid credit card, which pretty much eliminates the necessity for a bank.

Another group of people who prefer prepaid credit cards, which is yet another reason why prepaid credit cards are so enticing, is that the government hardly has a hand on the regulation of these types of cards. For the consumer who prefers that the Federal Government keep a hands-off approach to their money and life, these cards are a great alternative to the highly regulated banking and credit card options. It also for this reason that companies like Wells Fargo and JPMorgan Chase are exploring options for prepaid credit cards.