Prepaid Credit Card: Easy Money

by : Akhil Shahani

Consumers have never had it so good. Not only do they have a problem of plenty when it comes to deciding what to buy, they are faced with as much choice regarding methods of payment. First cash, check, credit and charge cards, and now the prepaid credit card too!

If you're wondering what a prepaid credit card is, it's not very different from a debit card linked to your checking account. A prepaid credit card is one where a deposit is made into an account, and the card can then be used like any other, until the deposited amount is exhausted. This is great news for a large number of consumers, especially those who have a bad credit history and hence do not qualify for a regular credit card, or those without bank accounts. Now they can avail of the convenience of a regular credit card, which not only allows them to purchase at different establishments, but also enables transactions such as hotel or flight bookings and online purchases.

Getting a prepaid credit card is simple, hassle free and does not involve a cumbersome approval process. In fact, users can even acquire one online at websites such as .That's probably one of the reasons why it is gaining so much popularity, with some of the big guns expecting to more than double their prepaid credit card sales this year! While a small deposit or fee might be charged at the time of applying for a prepaid credit card, there are no interest payments or monthly bills to worry about. Also, since there is a cap on the amount that can be spent, it's the best way to kick the habit of overspending. In addition, it's a good way of keeping track of where the money is going!

These cards, also called stored value cards, have found application in a number of other areas, such as payroll, with over 10% of people with no bank accounts having one. Gift cards are another growing segment. A lot of fancy research reveals that more people prefer to gift a card rather than cash or paper certificates. Retailers too have cashed in on this opportunity by introducing their own prepaid cards, to be used within their outlets. Another example is that of companies which provide a prepaid credit card to employees who need an expense account. Interestingly, a prepaid credit card can also bring in a bit of extra income for existing users who are rewarded under a referral program. See for more details.

Of course, there is also a flip side to the prepaid credit card. Since there are no interest charges, companies that issue such cards charge a fee at the time of account activation and also whenever the card is topped up. Another limitation is that providers of certain services, especially those which are subscribed to on a periodic basis, do not accept a prepaid credit card as a method of payment, owing to the risk of the account not having sufficient funds over a long duration. On the whole, however, the merits of a prepaid credit card outweigh its drawbacks.