Prepaid credit cards are by definition not credit cards in that credit is not available on them. How they work is that the user loads them up with money in advance and that money is then available on the card, which can then be used like a normal credit card.
Most users of prepaid credit cards in the UK fall into three categories. First, are young people whose parents or guardians want them to experience using a credit card but without risking them running up large bills. Secondly, are people who have bad credit ratings or are subject to an Individual Voluntary Arrangement and thus cannot apply for a normal credit card. Thirdly, they can be used as a handy way for taking money abroad, and the charging structure on some cards is geared towards this market.
The cards will normally carry either the Maestro, Mastercard or Visa mark and can be used where any of those cards are accepted provided there is enough money on the card to cover the purchase.
Prepaid Credit Card Fees
Because there is no debt involved on which the credit card company can charge interest on a prepaid credit card account, they have to make their money by charging fees for various services and these can vary by large amounts.
The first fee is the application fee. Some cards do not charge a fee but insist on an initial load. Most application fees are in the £5 to £10 range but some can be as high as £30.
The second fee is a transaction fee, which is a charge for making a purchase. Again, some cards do not charge for this. Some make a charge that is a percentage of the cost of the purchase and these range from two to three per cent. Others have a fixed fee charge ranging from 40p to £1.50. A similar situation happens when drawing money from cash machines with some not charging at all, some charging a percentage and some a fixed fee.
Most prepaid credit cards do not charge a monthly fee but those that do range from a couple of pounds up to £15 or more.
Some will also charge a fee for loading money onto the card and this will vary depending on how the card is loaded. For example, some cards will not charge if the card is loaded via a BACS transfer but will charge if it is loaded from a debit card.
Prepaid Credit Cards for Travel Money
Some pre paid credit cards have a fee structure that makes them attractive to use when travelling abroad. Such cards will normally not charge for making purchases abroad or for drawing cash out abroad but will charge when making purchases or drawing cash out in the UK. Though these provide convenience for regular travellers, it is worth checking their conversion rates for countries that are going to be visited as this can make them expensive.
Losing a Prepaid Credit Card
Unlike a normal credit card, where there is protection from being hit by unauthorised charges if a pre paid credit card is lost or stolen, there may be no protection with some card companies saying the user should treat the card as they would cash. So, for example, if a user has £100 in cash and loses that money then unless they are very lucky it is gone forever. Likewise, if they lose a prepaid credit card with a similar amount of money on it then that should be regarded as lost as well if that money is used before the card is stopped.
Prepaid Credit Card Application
There is no one card that offers the best of all these worlds and users should work out their most likely usage pattern and decide which would be best before applying. For example, if a user wants to make a lot of online purchases but never use it to draw money from a cash machine, they would look for a card with a low or zero purchase charge and not worry if the cash machine charges were high.
Potential users should compare all of these and work out which is the best prepaid credit card for them.