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| What are the pros and cons of prepaid debit cards? |
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Last Updated
13th of April, 2010
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Did you know there are over 20 million people in the United States who
can't open a regular bank account? Basic items such as cashing a check
or paying bills become difficult and very expensive tasks.
Prepaid debit cards are a good resource, allowing customers to enjoy the ease of direct deposit, the flexibility of a credit card, and online bill pay. These cards work a lot like a gift card; you will have to load the account with cash (direct deposit is usually available) before you can use it for a purchase. Let's take a closer look at what prepaid debit cards offer:
Pros – These cards look like real credit cards and can be used for most situations that require a credit card. Instead of granting you a credit limit based on your financial standing, these accounts require you to “load” the card with your own money. Getting approved for a prepaid card is usually easy, even if you have credit problems. You can't get into debt using a pre-paid card, since you cannot spend more than the balance you have deposited. Also, you will not be charged interest for your spending.
Other pros of pre-paid credit cards:
- Easy approval process, no credit required
- The same fraud liability protections as a standard credit card
- Easy to use for online or phone purchases
- Access cash from ATM machines
- Less expensive than check cashing services
Cons – Prepaid debit cards may not report your repayment history to the credit bureaus. If the creditor does not report your account, this type of card will not help you improve your credit. Prepaid cards cannot be used in all situations. For example, hotels and car rental agencies will not allow you to use a prepaid card to secure your rentals.
Other cons:
- Expensive fees for opening and maintaining the account
- Fees for loading money on the account or using the card for purchases
- Very limited, if any, reporting to the credit bureaus
- Does not help improve your credit the same way a credit card or secured card would (it may not improve your credit at all, especially if the card is not reported to the credit bureaus)
- Much more expensive than opening a checking account and using an ATM card
Fees and charges can vary significantly between different prepaid credit card offers. Be sure to read the fee schedule for the prepaid credit card before you apply.
Now that you know the pros and cons, apply for a prepaid debit card that fits your needs online today!
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