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Pros and Cons of Prepaid Cards

Prepared cards offer an additional method of making purchases of products or services. They are also prepaid debit cards, reloadable cards, or stored valued cards. While they function like debit cards, the cards have the look of regular credit cards and are frequently backed by Visa or MasterCard. A prepaid debit card is bought with a pre-determined amount of money that you can use at merchant locations. Unlike a credit card, prepaid debit cards allow you to spend only the amount on the card and there is no balance left to pay. You can buy prepaid debit cards online and at almost all supermarkets and convenience stores. You may also receive prepaid cards as a gift, and you can use them to pay for government benefits like social security or insurance for unemployment. Read the article to learn about the pros and cons of prepaid cards.

Benefits or advantages of Prepaid Cards

Prepaid cards may be more secure than Cash

According to regulations set by the Consumer Financial Protection Bureau, prepaid card issuers are required to provide their customers with equal liability and loss coverage as debit card issuers. This includes zero liability for any unauthorized charges if the customer promptly reports a lost or stolen card.

Poor credit is not an issue

Your credit report won’t be examined by anyone when you buy a prepaid card. There are no payments, thus your credit history is not important, and there is no risk to the card issuers.

Keep track of your expenses is simple

Prepaid cards are a great way for people who are struggling with personal finance to learn how to manage their spending. Just like traditional banks and credit unions, prepaid card issuers allow you to track your spending. Depending on your card issuer, you can check your balance and activity online. Over the phone, or through a mobile app.

No bank account, no problems

Your card functions similarly to a bank account that has money placed upon it. Prepaid cards are a popular substitute for checks when people are unable to or unwilling to create a bank or savings account. You can withdraw cash from ATMs as well.

There are multiple ways to add funds to a prepaid card

You can reload the card at a retailer or financial institution that accepts the specific card, Transfer funds from a bank account or another prepaid card, or arrange a direct deposit of your paycheck. Your card might be reloaded over the phone.

Low limits for excessive spenders

Too many people build up huge amounts of debt and spend more than they planned to or save less than they planned because they are unable to say no to the huge credit limits that credit card companies place on them. Prepaid cards set a maximum amount that can be owed of Rs, 1,20,000 for minimum detail cards and Rs, 2,00,000 for complete KYC cards. It allows you to stick to your budget and stay within your limit.

Collect points and rewards

When you make purchases with your prepaid card, you can accrue points just like you would with debit or credit cards. You can accrue rewards by swiping every time, which you can then use to redeem coupons and other deals.

Drawbacks or Disadvantages of Prepaid Cards

There are charges for prepaid cards

Numerous fees may be placed on cardholders, such as inactivity fees, activation fees, transaction fees, Reloading fees, ATM withdrawal fees, and monthly fees. For information on fees kinds, see the card’s small print. On the other hand, if you frequently overspend a checking account and suffer high overdraft penalties, switching to a prepaid card might save you money.

Usability based on categories and contract

The KYC card is the only one that can be used for the three primary functions of making purchases, transferring and making cash withdrawals as you have noticed from our section on the various prepaid card kinds. However, the minimal detail cards can only be used at specific places and to make purchases of products and services.

Your credit score cannot be raised via prepaid cards

Transaction information is not reported by credit bureaus. They cannot therefore assist you in creating or repairing your credit history.

Some prepaid cards come with fees and overdraft protection

Prepaid cards typically don’t enable you to spend more than you load onto them. However recent updates have made it possible for users to go over their limits and incur overdraft fees.

Prepaid cards don’t help you build credit

Unlike credit cards, prepaid cards do aid in credit building. The good news is that excessive spending won’t harm your credit. Prepaid cards essentially won’t damage your credit, but they also won’t help it either.

Thank you for reading this article. If you have any queries regarding our article on the Pros and cons of Prepaid Cards, then do leave a comment in the comment section below.

Explore More Information:

  1. Debit Card Advantages and Disadvantages
  2. Credit Card Advantages and Disadvantages
  3. ATM Advantages and Disadvantages
  4. E-Banking Advantages and Disadvantages
  5. Online Banking Pros and Cons

Author Profile

Jay Solanki > Expert Content Writer
Jay Solanki > Expert Content Writer
Jay Solanki is an expert writer with 8+ years of experience as a content writer. They specialize in making complex topics like insurance and technology easy to understand. Jay has written over thousands of articles to help people become confident about technology knowledge. Prior to joining Way2benefits’s editorial team in 2020, Jay worked as a Digital Marketing Expert and user experience researcher, producing content for US based firms.

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