Prepaid credit cards: its function, benefits and types

Credit cards are very useful in some cases, especially during emergencies, when you require a large sum of money. Furthermore, in the absence of cash, credit cards are an effective way of handling transactions. However, if you own a credit card, it is very easy to go overboard with your expenditures and land up in huge debt to your bank. This is why prepaid credit cards have become so popular in recent times.

What are prepaid credit cards?

Unlike conventional credit cards, prepaid cards use the money that has been pre-loaded into them. On the other hand, in regular credit cards, the money you spent is actually borrowed from the bank. You need to repay this money to the bank within a stipulated time.  However, prepaid credit cards use your own money, so there is no risk of being debt-ridden.

Benefits of prepaid credit cards

• The biggest and most important benefit of prepaid credit cards is that there is no risk of debts, as you would be spending your own money and not the money lent by the bank.
• Prepaid cards are available to all irrespective of credit rating, income and age, all of which would be required to attain a normal credit card.
• Prepaid credit cards can be acquired through the online application. Furthermore, there is no hassle of paying bills and no stress of late payment penalties.
• Unlike conventional credit cards, prepaid credit cards allow you to set the spending limit for the card. Therefore, such a card guarantees that you would stick to the budget.
• Some prepaid credit cards can be used to withdraw money from ATMs, just like a debit card.

Types of prepaid credit cards

• Open looped prepaid cards
Most merchant outlets accept the most common type of prepaid card present in the market today, open looped prepaid cards. Furthermore, these cards can be used to withdraw cash from ATMs.

• Closed loop prepaid cards
Closed loop cards are those cards, which are accepted at limited vendors and merchants. For instance, gift cards are valid example closed-loop prepaid cards.

• Semi-open looped cards
Semi-open looped cards are those prepaid cards that work across vendors of a specific outlet or company. For instance, certain prepaid cards offered by your convenience stores will work across all outlets of the same organization.

• Reloadable cards
Most prepaid cards are reloadable; wherein you would have to load money once the preloaded sum is exhausted.

• Non-reloadable cards
These prepaid cards cannot be reloaded once the preloaded sum runs out. For instance, most gift cards fall under the category of non-reloadable cards.
Once you have all the information regarding prepaid credit cards, contact your bank to avail one and enjoy all benefits of a credit card, without facing the risks normally associated with credit cards.