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Prepaid credit cards advice

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This guide explores the pros and cons of prepaid cards to help you work out whether they might suit you…(Updated 4/12/09)

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.

Pre paid credit cards

Company	Package Name	Accept CCJs & Bad Credit	Credit Check	Card Type
	O2 Cash Manager - Pre Paid			Visa
	Post Office Travel Money Card			Visa
	Virgin Monthly Fee Prepaid Mastercard			Mastercard

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.

Prepaid credit cards currently on the market include the Post Office Travel Money Card, O2 Cash Manager, and Virgin’s Prepaid Mastercard.

Are fees and charges involved?

The simple answer is ‘yes’. 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 usually entitled to services such 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.
• 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.
• Overseas fees – Some cards charge extra if you use them abroad.
• Replacement card fees – Some issuers charge you if you lose your card and need a replacement.

Fees vary between prepaid cards. Virgin Money’s Pay Monthly card, for example, costs £9.95 to set up and then £4.75 a month. The card is free to use in the UK but there is a £1.50 fee for cash withdrawals. If you use the card overseas you’ll be charged 2.95% of the transaction amount and £1.50 every time you use the ATM. Topping up the card at a Post Office, by debit card or direct transfer is free but you’ll be charged 2.75% of the transaction amount if you top up by PayPoint and 2.5% if you top up by credit card.

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.

What are the advantages?

Prepaid 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 also 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.

What are the disadvantages?

Firstly, 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.

Secondly, 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.

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 Mastercard are a great ‘starter’ card for under 18s and students, whereas the Post Office Travel Money Card would benefit those going travelling during a gap year.

Compare credit cards

Pre paid credit cards

Company	Package Name	Accept CCJs & Bad Credit	Credit Check	Card Type
	O2 Cash Manager - Pre Paid			Visa
	Post Office Travel Money Card			Visa
	Virgin Monthly Fee Prepaid Mastercard			Mastercard

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