Prepaid credit cards function in a similar way to pay-as-you-go mobile phones. The idea is simple- you load credit onto the card in the form of money, and can then use that card to make purchases instead of a bank card, or cash.
What's the point?
It may seem like a bit of a pointless accessory, but the prepaid credit card market is currently growing and they have a number of possible uses.
- Budget Management As you can't spend more than you've loaded on, they're quite safe to use for day-to-day stuff, if you're currently living on a budget for whatever reason. There are no fines or penalties to suffer as with overdraft charges, and even more so; unplanned overdraft charges, so you can't get caught out accidentally. Could also be used in the same way to pay bills.
- Protecting your bank account Carrying a prepaid card means you don't have to carry your actual bank card, effectively keeping your main fund more safe and secure.
- Holidaying Similar to the point above, you might want to consider using one for any holidays rather than carrying around too much currency at any given time.
- Children Children that are a little too young for a bank account can carry them around as an alternative to cash. Also useful for school trips etc. where there isn't necessarily a safe place to store cash.
- Repairing Credit Rating Some cards are now available which will help repair your credit rating. This works by a small loan of around £60 being applied to that card; which you pay off at a minimum rate of £5 per month.
Using Prepaid Credit Cards
Apart from there being no 'credit' involved, prepaid credit cards are as versatile as normal credit cards. This is because they're issued either by Visa or MasterCard, meaning that you can expect to use them anywhere that accepts Visa/MasterCard; both home and abroad.
You can obtain them from a number of issuers, both locally and on the internet. There is no credit check involved, so there is no real chance of being refused one. Some issuers charge a small annual or monthly membership fee, others charge a one-off fee of £5 for the card, whilst others make their money by taking a small percentage on any withdrawals you make. As such, you should shop around, or use a comparison site to find the most appropriate card for you.
Loading cards is also straightforward and convenient. There are several methods, including loading at ATMs and PayPoint shops, as well as telephone and internet loading. Internet loading is by far the most convenient, with most providers allowing you to set up a bank account to fund the card directly, with the funds appearing instantly on your prepaid balance. Some providers also offer the function to set up a direct debit to automate the top-up process, for added convenience.
Unlike with standard credit cards, any purchases you make won't be covered by section 75 of the 'Consumer Credit Act', and therefore you shouldn't look to use them to purchase anything valuable. However, if you do find yourself in a situation where you need to claim, (assuming your card is Visa), redress might be possible under the 'chargeback' scheme.