Prepaid Credit Cards explained

Do you need a prepaid credit card?

In today's credit-based society, it's hard to get by without a major credit card. Just try renting a car or making a purchase online without one and you'll see what I mean.

But for people with past credit problems, they can be very difficult to get. The answer? Prepaid credit cards.

What are prepaid credit cards?

Many lenders now offer prepaid MasterCards and/or prepaid Visa cards. These cards work exactly like a regular credit card. In fact, neither you or the store will be able to tell you're using a prepaid credit card simply by looking at it or using it.

The concept of prepaid credit cards is really very simple. You open an account and "pre-load" the card with cash up-front, similar to a pre-paid calling card. Then you use your prepaid MasterCard or Visa anywhere these cards are accepted.

Advantages of prepaid credit cards:

• They're extremely easy to get. You can purchase a prepaid credit card online or at many local retail stores with no credit check or income requirements.

  All you have to do is fill out a short application, pay a small set-up fee, and load the card with cash (this amount will be your "credit limit").

• There are no interest charges. When you use your prepaid MasterCard or prepaid Visa, you're not borrowing any money. The fact is you're using your own money so you pay no interest!

• Prepaid credit cards can't get you into financial trouble or lead to credit problems, which is probably why you need a prepaid card in the first place. Since you aren't borrowing any money, you can't go into debt.

• You can use them almost anywhere. A prepaid MasterCard or VISA can be used virtually anywhere VISA and MasterCard are accepted.

Disadvantages of prepaid credit cards:

• They're expensive. You'll usually pay a set-up fee (typically $5 - $50) when you first open the account. After that, you'll have to pay a fee of $5 or more each and every time you "load" more money onto the card.

  Compare this to today's regular credit cards which rarely charge a set-up fee or annual fees. Of course, not having to pay interest can help offset these charges a bit.

• You have to have cash up front to load the card before you can make a purchase with it. Of course this can actually be considered an advantage depending upon your perspective.

• Some prepaid credit cards cannot be used to make automatically recurring payments, such as a monthly subscription to an online service.

Conclusion

A prepaid credit card can be an excellent solution if you have had past credit problems or have difficulty getting a regular card for some reason. In fact, a prepaid card might be the only solution!

If you decide to get one, compare several offers and select the prepaid credit card that most closely matches your needs and special circumstances.