Is There Really A PrePaid “Credit” Card?

Prepaid Credit CardsYOU MAY SEE ADVERTISING FOR PREPAID CREDIT CARDS, BUT THERE IS NO SUCH THING. In simple terms, a prepaid credit card is “not” a credit card at all, since the most elemental aspect of the card does not exist: “Credit!” More directly, there is NO credit offered by the issuer of the card. The card stores money (like a gift card) which has already been paid by the card-holder or someone else (such as a parent, or someone else, providing a gift or an allowance).

A purchase made via an actual credit card does not use any of the purchaser’s own money. That is paid back later, and for most credit card users, it’s paid back with interest.

However, such cards that are prepaid are using money that is already set aside. These plastic cards look like regular credit cards with Visa and MasterCard logos. Since they work just as easily and in the same ways as regular credit cards the term “prepaid credit card” is used merely as a reference of familiarity, rather than a factual depiction.

With prepaid credit cards there is no interest charged but there is probably a purchasing fee plus monthly fees added to the billing.  (Which means they are more expensive than the gift cards referenced above.)

These prepaid cards offer a way for parents to allow limited purchases for their teenage children, without either parent needing to be present to complete the transaction.

These types of cards may offer certain conveniences, but they are not a cost-effective way to handle money.

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