Prepaid debit cards may function like regular credit cards but there are actually major differences between these two types of plastic cards. In this article, let us discuss the basic facts that you need to know about reloadable prepaid debit cards.
No Credit Line. First, a prepaid debit card doesn’t provide the cardholder with a credit line. In order to use the card for purchases or bill payments, the cardholder must deposit cash in the debit account. When the fund runs out, the cardholder must make a new deposit or “reload” cash to use the prepaid card for new transactions. Hence, the name reloadable prepaid debit cards.
No credit check. Unlike credit cards, issuers of prepaid debit cards do not check individual credit history or credit scores. As long as you can submit a deposit in your debit account, you can obtain a prepaid card with no difficulty. This is why, prepaid cards are ideal for people who need the convenience of credit card payment but cannot get approved for a regular credit card because of bad credit or not having credit history at all.
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No interest rate. When you pay with your prepaid debit card, your bill is automatically paid off using the funds in your account. This means you do not have to option to defer your payment or pay at a later time. The good thing about this is that you do not need to worry about paying additional interest rate fees.
Transactions fees. While there is no interest rate, prepaid debit cardholders must be aware of transaction fees. This means a fee would be charged to your bill each time you use the prepaid card for payment. The cost will vary depending on the issuer.
Annual fees. Like regular credit cards, prepaid debit cards also carry annual fees to keep the account active. The fee can range from $50 to $100 or more, depending on the issuer. Not being able to pay the annual fee on time can result to deactivation of the debit account. Thus, a prepaid cardholder needs to be conscious about his/her payment due dates.
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Credit rehabilitation. In the past, issuers of debit cards do not report payments to the credit bureaus. Today however, there are some prepaid debit cards that report your activity or card usage to the major credit bureaus (Experian, Equifax, TransUnion) so that they can be used for rebuilding bad credit.
Limited protection against liabilities. Credit card issuers provide their customers with protection against unauthorized charges. Nevertheless, prepaid debit cardholders may not enjoy such protection against liabilities. Some prepaid debit card issuers may give protection but only if the cardholder reports the unauthorized charges 2 days after the transaction was made. If you fail to report on time, then there is no way to bring back your lost money.
