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What are Prepaid Credit Cards?

A prepaid credit card or a prepaid virtual credit card is issued by a financial institution or bank to be used for transactions in a very similar way to a credit card. A prepaid card comes loaded with funds and works in a way that is very similar to a normal credit card. However, unlike a normal credit card that will function on credit that is borrowed from a bank, a prepaid card allows customers to make purchases using funds pre-loaded into the card.

Akin to a gift card, a prepaid cc can be used until it has funds. The greatest advantage offered by a prepaid card is that customers can make purchases without incurring any debts while also paying huge interest. Additionally, there is also a credit limit with such cards that have to be adhered to, and purchases have to be made only up until the amount that is available on the card. A nominal issuance fee may be applied by banks when a prepaid card is offered. The credit score of an individual is also not a key criterion once approvals are carried out. Along the same lines, using a prepaid card for one’s purchases does not significantly impact the CIBIL score of an individual.  So, if you dont have a Prepaid Card yet, then apply for a credit card today!

Advantages of Prepaid Credit Cards

Here are some of the benefits of using a prepaid credit card over a normal one.

  • A prepaid cc can be used to pay for any goods or services that customers need not worry about having to make cash transactions for.
  • If one uses an open looped prepaid credit card, they can make ATM cash withdrawals.
  • Once expenses would not go overboard as customers will have the option to easily plan their expenses and purchase goods that are within the limit of the card.
  • As long as the prepaid card one is holding remains valid, a customer can always secure extra cash for any urgent purchases or transactions.
  • The credit score of a person does not serve as a major criterion when it comes to qualifying to receive a prepaid credit card.
  • A prepaid card is the easiest to procure, as long as the applicant is not specifically looking for any other kind of credit card.
  • When it comes to paying any outstanding bills through one’s smartphone, a prepaid card can be used, making bill payments electronic and thereby a lot more convenient.
  • For any employees who do not hold a bank account, their salaries can be distributed by using their employer’s prepaid credit cards.
  • A prepaid credit card also functions like a gift card and can be used as a travel card to load up currency when an individual decides to travel abroad.

Types of Prepaid Credit Cards

Currently,  there are a variety of prepaid credit cards — both real and virtual available. One’s preference and needs will determine which type of prepaid cc is ideal for them.

  • Open looped cards: Also referred to as open-system cards, these types of prepaid virtual credit cards are branded with the network that they’re affiliated with. Each card will carry the brand logo of the affiliate and will be specifically issued by banks in association with Visa, MasterCard, or Amex. Open looped cards are merchant outlets and approved banks.
  • Closed Loop Cards —Unlike an open looped prepaid card, the acceptance of a closed-loop credit card is restricted to the affiliated merchant outlet for buying goods and services at those outlets. Gift cards are typically issued as closed-loop cards.
  • Semi-Open Looped Cards: These are like hybrid prepaid cards. A semi-open looped card is accepted by a variety of chains or merchant outlets that are affiliated with the card. Oftentimes, cards are issued by retail chains or shopping malls and can essentially be used at locations that carry stores with such brands.
  • Reloadable cards: Most prepaid credit cards come as reliable where a customer has the option to add more funds, once the amount that is held in the card has been utilized.
  • Non-Reloadable cards: Again, a gift card falls under the category of a non-reloadable prepaid credit card. Once the customer has used up the funds loaded in this card, reloading cannot be carried out. One's purchases can be carried out upto what is available on the card itself.

Prepaid Credit Card vs Debit Card

Here is a comparison of a debit card versus a prepaid credit card. Although they function similarly to one another, there are some subtle differences between the two. A prepaid credit card, similar to a debit card, is linked to a bank account. A prepaid credit card places a limit on the amount that you have already loaded into it. Alternatively, a debit card allows you to spend the sum that you have within your bank account.

A prepaid card can be linked to a certain business brand. Alternatively, a debit card can be used in any store or place of business that accepts MasterCard or Visa. When it comes to the spending amount on your card, with a preloaded credit card, you can simply reload it with a cheque or through cash. On the other hand, a debit card can be used for as long as you have a bank account associated with it.

Limitations of Prepaid Credit Card

Whether you buy a prepaid credit card online or you opt for one through your bank in person, there are certain drawbacks to this type of payment mode. Some of the drawbacks of using a prepaid credit card are as follows:

  • This type of card cannot be utilized until you have loaded money into it.
  • This type of card does not fulfill all safety obligations and therefore can be misused in case of theft or loss.
  • As there is no revolving credit limit that is involved in this type of payment mode, banks are not required to report your payment history with these types of cards to India’s three major credit bureaus.
  • These types of credit cards often do not contribute to impacting your credit score in a negative way.
  • The terms and conditions for consumer protection for these cards are often unclear.

In conclusion, prepaid cards are an effective way to limit one’s spending especially if you are a new salary earner. As with any payment mode, they come with their own set of drawbacks but can be the right fit for you if you are looking to make electronic purchases in a budgeted way. 

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