Credit card Guides

Prepaid credit cards

For those that require the functionality of a credit card, without wishing to borrow money, a prepaid credit card could be the ideal solution.

Read our prepaid credit card overview to see if this card could work for you.

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What are Prepaid Credit Cards?

Similar in principle to a pay as you go phone, a prepaid credit card allows you load your card with cash and spend away! Cards can be topped up by bank transfer, direct debit and through many retail outlets.

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Are fees and charges involved?

The simple answer is ‘yes’, although they’re not exhaustive. Here’s a rundown of the charges associated with prepaid credit cards:

Application Fee – Quite often you will be charged for taking out a prepaid credit card.
Monthly Service Charge – By paying this fee you’re entitled to such services as online account access and a dedicated customer support.
Card Loading Fee – You may be charged each time you elect to top up your card with cash. These fees are especially apparent when topping up your card via a bank account.
ATM Withdrawal Fee – As with most credit cards, prepaid credit cards are subject to cash withdrawal (or ‘cash advance’) fees. Check the small print though, some cash machines will let you withdraw cash and make deposits for free.
Purchase or ‘Online’ Fee – You may be charged for specific transactions, i.e. online purchases.

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Who are they for?

Prepaid Credit Cards are designed with those who are unable to obtain a standard credit card in mind. Maybe you’re too young to apply for a credit card, or perhaps you’ve had an application turned down due to a poor credit history? In these instances, a prepaid credit card could be the solution.

Additionally, you’re not permitted to spend beyond the amount that has been loaded onto the card, so it is impossible to get into debt with a prepaid credit card.

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What are the advantages?

Credit cards offer extra protection when making online purchases; you’re additionally covered by the credit card provider’s protection policy. It’s safer to use a credit card that a debit card when buying products online.

Using a prepaid credit card can help you budget, especially if money runs through your hands like water. You can’t spend more than has been loaded onto the card.

Credit cards are accepted in more places than debit cards and take up less space than cash. Carrying a prepaid credit card is safer than carrying huge amounts of cash, if the card is lost then it can be instantly blocked.

Unlike standard credit cards, there’s no interest to pay on prepaid credit cards. You can make purchases without having to worry about extra interest payments on top.

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What are the disadvantages?

There is often a fee charged when loading money onto prepaid credit cards, and if you don’t load them strategically then you might end up spending as much as you would in interest on a standard credit card.

Money sitting dormant on a prepaid credit card is not attracting any interest. The equivalent amount parked in a savings account would be earning interest and working for you.

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Are Prepaid Credit Cards suitable for travelling?

Absolutely, especially the Post Office Travel Money Card (TMC). The TMC prepaid card offers many advantages:

Unlike Travelers Cheques you don't need ID to make a purchase or withdraw money.
Cash can be withdrawn from millions of ATMs worldwide, 24/7.
The TMC is completely separate from your bank account, which will help to protect your identity in the event of fraudulent activity.
You can load the card with any amount between £1 and £2500, and top up by phone or in branch.
You card is protected should it be lost or stolen. Replacement cards will be dispatched immediately.
No commission is charged on foreign currency.
The credit loaded onto the card is valid for two years, regardless of the currency.

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The Sun Prepaid Credit Card

For UK use, a Sun Prepaid Credit Card could make your money go further. Here are the stats:

The minimum amount you can load onto a Sun Prepaid Credit Card is £10.
The maximum is £1500.
The maximum permitted balance is £3000

You can either pay a £4.99 monthly tariff for the upkeep of your Sun Prepaid Credit Card, or pay as you go. By paying the monthly tariff, you will incur fewer fees each time you use the card.

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I use my credit card for everyday purchases, would a Prepaid
Credit Card work for me?

A Sun prepaid credit card could make the most of your money. Here’s how:

If you were to load the card with £60 per month, and make ten purchases of £5 each, then each of these purchases would be subject to a 55p surcharge. In total, you would have spent £55.50 by this point, which, with the initial loading fee on top (£1.80), makes a grand total of £57.30.

Effectively, the remaining balance is in the black at £2.70.

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And Finally….

Prepaid credit cards are ideal for those who require the functionality of a credit card, but have been refused a standard credit card due to a poor credit rating. They’re also a handy spending tool for those who are conscious of avoiding debt. Cards such as the Virgin Prepaid Credit card are a great ‘starter’ card for under 18s and students, whereas the Post Office TMC card would benefit those going travelling during a gap year.

Compare prepaid credit cards.

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