Undeniably, prepaid cards have become very popular since they were first introduced. A Pew survey indicated that from 2012 to 2014, prepaid card usage has exploded by as much as 50 percent. From there, it just exploded in terms of popularity and became one of the most preferred financial tools by many.
Studies also indicate that prepaid cards are a favorite among millennials. Many of them consider prepaid cards as the ultimate alternative to the conventional bank accounts. Those who don’t have easy access to traditional cards like credit or debit cards can use prepaid cards instead since they offer many similar benefits and share similar features.
Prepaid Cards in a Nutshell
Prepaid cards are similar in many ways to debit and credit cards. This is especially true when it comes to their appearance. However, prepaid cards have one distinct feature that sets it apart from its counterparts — they are not linked to any savings or checking account.
In other words, prepaid cards need to be preloaded with money before they can be used for any transactions, regardless if it’s online or merchant purchases or ATM withdrawals. Unlike other cards, prepaid cards don’t have credit capabilities. That means you would be using your own money instead of “borrowing.”
Gift cards are considered a type of prepaid card. However, they are designed for one-time use only unlike reloadable prepaid cards that you can use countless times. As long as you will load money successfully onto your prepaid card, you can use it as many times as you please.
How to Use Your Prepaid Cards
Just like debit and credit cards, prepaid cards can be used for online and merchant transactions. Prepaid cards are also typically backed up by established and massive financial and credit networks. This means they are honored and accepted in merchants and establishments that are associated with the network.
Each time you use your prepaid card, the amount of the purchase or withdrawal will be deducted from the balance directly and in real time. Since the card does not come with a credit capability, your transactions will be limited by the balance you have on your card.
Once the balance has been depleted, you won’t be able to use your card for the time being or until such time that you can load money again to the card. In the same manner, if the balance is no longer sufficient to cover a transaction or withdrawal, both will be declined.
Fortunately, you can use the card immediately as soon as you are able to load money onto it. The great news is loading money onto the card is as easy as can be. Amazingly, most providers also provide many options to load the card so you can just pick the option that is most convenient for you.
How Prepaid Cards Differ from Credit Cards
While both plastic cards are designed for ATM withdrawals and purchase transactions, they have a distinct difference. With a prepaid card, it has to be preloaded with money first before you can use it. A credit card on the other hand has a credit balance that you can draw money from and use for your transactions.
Transactions using a credit card is also considered a loan so your statement balance as well as credit history will be provided and reported to major consumer credit bureaus. On the other hand, transactions using your prepaid cards will not be reported and won’t have any impact on your credit and financial standing.