11/11/2022
With so many cards available in the U.S. financial system, it is to be expected that people are not sure how each one works.
Since we're focused on improving your personal finances, we want you to know the differences between credit and prepaid cards so you know which one might work best for you.
May interest you: Differences between credit and debit cards
What is a prepaid card?
To use a prepaid card you need to preload an amount of money, just like a gift card or a cell phone card, which are other types of prepaid cards.
In addition, they are banking products sponsored by the major payment processing companies, such as MasterCard, Visa and Discover.
These types of plastic cards have become very popular because they represent a convenient substitute for not carrying cash. Like credit cards, they are accepted at most offline and online merchants where you see the logo of the most recognized companies.
Prepaid cards are not linked to a bank account and you can only use the balance you have previously paid.
How do prepaid cards work?
In principle, these financial instruments can be contracted in traditional or online entities that offer them. As they usually have a maximum limit, you are the one who decides how much you need to charge for daily or recurring expenses.
Unlike credit cards, applying for a prepaid card does not include a hard credit inquiry for your report, so it does not affect your credit score.
In the event that you need to recharge it because you don't have enough funds, there are several methods to add funds to the card:
- You can send an SMS to add money and have the amount deducted directly to the card.
- You have the option of visiting a store, point of sale or post office in person to load the balance.
- If you have a bank account, you have several alternatives to recharge it: do it by phone, online or include a direct debit to deposit funds on a regular basis.
As you know, these plastics are associated with financial companies or banks. This means that you can use them in stores that accept them, as if they were debit or credit cards.
At the moment of payment, you will be able to confirm the transaction by means of the PIN or a signature, depending on the technology that the seller has in his sales terminal.
Several experts believe that prepaid cards are not only PIN-protected, but also safer than withdrawing cash.
On the other hand, if it is lost or stolen, the issuing company has a registry to replace it. In these cases, you contact the responsible entity so that they block the plastic and no one can extract the money you have.
- Annuity: $ 0
- Credit limit: $ 150
- APR: 17.49%
- Annuity: $ 0
- Credit limit: Ask
- APR: 19.49%
- Annuity: $ 0
- Credit limit: Ask
- APR: 22.49%
- Annuity: Ask
- Credit limit: Ask
- APR: 20.24%
- Annuity: Ask
- Credit limit: Ask
Other important aspects of these financial products are that they have an expiration date, you can use them to withdraw money from the ATM and you do not run the risk of being charged for lack of funds (overdraft).
How much does a prepaid card cost?
The first thing to consider is the price for obtaining a prepaid card, which varies depending on the issuer.
In some cases, you are not charged for the plastic itself, but only when you deposit a certain amount of dollars, which can be $50 or more. It is also possible to take advantage of a promotion to obtain them at no cost.
Often these cards may include a monthly fee, charge you a fee for ATM cash advances, and you may be charged a fee every time you buy something.
You may also be charged nothing when using them online or in a physical store, as well as having to pay a percentage or fee for this operation.
Differences between a prepaid card and a credit card
Both prepaid and credit cards can be used to pay for goods and services wherever they are accepted. As for the differences between the two, we can mention the following:
- Credit cards are revolving credit with a limit that includes an interest rate each time you maintain a balance due.
- Although both products are sponsored by well-known companies, with credit cards you can obtain various benefits such as miles, cashback, insurances, rewards, purchase protection, etc.
- It is more difficult to get a credit card than a prepaid one. In fact, you have to go through a whole scrutiny process to get one.
- Unlike prepaid cards, with credit cards you may need to pay fees for annuity, overdraft, late payment, balance transfer, among others.
If you are looking for prepaid or credit cards, you can take advantage of Busconomico's search engine/comparison tool. It is your reliable source for the most popular products in the United States.
Español: Diferencias entre tarjetas de crédito y prepago