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Standard credit cards and prepaid debit cards are identical when using them to make a purchase. Merchants readily accept either type of card because they are guaranteed payment by the card issuer. However, there are a few important differences between a standard credit card and a prepaid debit card (sometimes called a prepaid credit card) that may help you decide which to use.
The biggest difference is how the money is made available to you.
- Prepaid Debit Cards essentially convert paper currency into electronic currency accessed via a plastic card. The available funds are limited to what is deposited or drawn down from the account. These cards are available to those with less than perfect credit because the risk to the lender is practically nonexistent.
- With a standard credit card, you are borrowing the lender's money with the promise of repayment. There is no need for a security deposit when you are approved for a standard credit card.
The difference in convenience
- When it comes to convenience the prepaid debit card is only as convenient as you have funds remaining in your account. Although they look like a credit card, it is better to think of them as a check.
- With a standard card your credit limit is typically a generous amount that would be difficult for most people to deposit into a prepaid account.
Fees and term differences
- With a prepaid debit card there will usually be an activation fee, monthly service fees and fees to use an ATM.
- A standard credit card agreement is typically free of application fees or service fees. Interest rates, over-limit and late fees need to be reviewed when considering a credit card.
Differences in protection
- Credit card users have additional protections that prepaid debit card users do not have. When an item is purchased with a credit card and the buyer has an issue that cannot be resolved with the seller, the issuing bank often offers safeguards for the consumer. Cardholders can dispute or stop payment of the charge.
- When a purchase is made using a prepaid debit card, there is no remedy when you have a problem with that purchase. Buyers beware!
If you have bad credit or no credit at all, the easiest way to have the convenience of credit is to get a prepaid debit card. You can also try applying for a secured credit card (designed for bad credit). Although these cards require a security deposit, they will provide you with a 'true' line of credit if you're approved.
If you have bad credit or no credit at all, the easiest way to have the convenience of credit is to get a prepaid debit card. You can also try applying for a secured credit card (designed for bad credit). Although these cards require a security deposit, they will provide you with a 'true' line of credit if you're approved.
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