5 Things To Know Before Applying For a Prepaid Credit Card

Prepaid Credit Cards are monetary cards that are issued by established financial institutions. Unlike normal credit cards, they are issues against a prepayment sum. This can also be considered as collateral that helps in assessing the credit limit of the person availing the card. A  prepaid credit card works in the same way as a normal Debit Card but there is a difference between two.

Banks and other financial institutions issue prepaid credit cards for several reasons. The main reason is that an individual recharges the card with a sum of money before using it. These cards have a sum that you need to recharge them.

Once it is exhausted, an individual is only allowed a very thin line of credit. This is radically different from the usages associated with a normal credit card.

In this article, we will look at the Top 5 things that need to be paid consideration, before taking a Prepaid Credit Card. We will also be looking at why these cards are different from standard Debit Cards, which also work on a prepayment financial model.

Prepaid Credit Cards versus Debit Cards: What is the Difference?

You might be wondering what the basis, operation, and meaning of prepaid credit card work in the same way as a normal Debit Card. However, there are some major differences between the two.

When it comes to a Debit Card, the facilities and features that a bank offers its customers are limited. It is usually linked to the kind of account that you are maintaining at the bank. Yes, a Debit Card also entitles you to Movie Tickets, eCommerce discounts and so on.

However, there is a limit to what you can avail of in the form of benefit. From the perspective of banks, minimum balance in the account is something that a Debit Card struggles with frequently.

As against this, a prepaid credit card means that someone is availing it only because that person needs to make some specialized purchase transactions. This is why there are Prepaid Credit Cards, which offer distinct advantages when used in certain categories or industries. The following are some of the popular prepaid credit cards, which are issued by banks and financial institutions-

• Prepaid credit card for Meals (Restaurants and Online ordering)
• Prepaid credit cards for Fuel (Petrol and Diesel buying at petrol pumps)
• Prepaid credit cards for Gifts (for gifting at birthdays, anniversaries and so on)
• Prepaid credit cards for Medical uses (buying medicines, hospital fee and so on)
• Prepaid Cards for Transportation (Highway Toll)

5 things to know before applying for a Prepaid Credit Card: The List

1.Cashbacks:

Ninety percent of all people who use prepaid credit cards take into account the amount of cashback that is given. Some banks offer up to 10% of the total sum as cashback. This can be a huge amount, especially because you might end up depositing close to a thousand dollars on your card at every recharge.

This means that you will still be able to enjoy an extra hundred dollars on your card once you exhaust your prepaid amount. Research the banks and see the nature of the card that is being offered. Some banks have to maintain targets. They end up giving excellent discounts on cashback.

2. Prepaid Card Usage Fee:

Every piece of financial article always involves some hidden costs. In the case of prepaid credit cards, it is usually the usage fee. Some financial institutions end up charging a lot of money, while others waive it off completely.

Go through the fine print of the agreement and clear the same with the officials at the bank. You will be fined 25% of the total amount if the paperwork is not completed as required. You do not want to end up with one-fourth of your prepayment gone.

3. National and International Use:

Unlike credit cards and debit cards, which have a far higher rate of global acceptance, prepaid credit cards do not enjoy such acceptance. They are denied at some of the hotels and lounge. So, it becomes very difficult for you while traveling if you are carrying a prepaid credit card.

You might argue your case, or prevent such a disaster from happening in the first place. You must know about the acceptance levels across nations and continents. This will help you use prepaid credit cards easily and without harassment.

4. Check for the Tie-Ups with the Bank:

All banks and financial institutions have a host of tie-ups with different industries. From travel to fuel, from food to shopping, you will come across a host of companies, which offer heavy cashback on such cards.

If you are taking a card from one of the bigger banks, you will see all the big names in the different industries. You can shop, eat and travel while availing significant features like Airport Lounge Usage, flying miles, free breakfast, and other important benefits.

5. Maintain Financial Discipline:

Maintaining financial discipline is very important. You cannot go around buying things that you do not need. Financial institutions encourage use by giving extra benefits in the initial months of the avail. This helps in building a frenzy and sees people overspend just to avail of something extra.

For example, you might have come across this- Shop for USD 100 more from your Prepaid credit card and get USD 50 worth of free goods. This is a financial trap, which banks use to make people overspend. It is important that you pay heed to financial discipline and not exhaust your prepayment all at one go.

Conclusion:

Who needs a prepaid credit card is a question, which often comes up. Well for starters, students who are studying at foreign universities can use the handy nature of the card. You do not need to go through the formalities of opening a proper bank account. Students, who do not have local addresses, cannot do that in any case.

Through the article, we have tried to give you a brief idea about the prepaid credit cards. We have also spoken about some of the important factors to take into consideration before you go for one.

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