New technologies have changed not only the way we live, but the way we work, and the money we use. It seems just yesterday, that cash was the norm checks and money orders were the only ways one could transfer funds. Today, it is credit cards, not cash which makes up the bulk of money in purchases.
With so many companies now accepting credit cards instead of cash, it is more important than ever to possess one. For newcomers however, the credit card market can be confusing. With so many different types, all with their names, promotions, interest rates, fees, and repayment schedules, it can be overwhelming to attempt to process all the necessary information. In these situations, taking a comparison approach can help decrease the confusion and help guide you to the best financial situation for your needs.
First, one should understand the options available: the prepaid card and the credit card. These two cards both work anywhere credit cards are accepted. Both are valid currency, and both have protections that cash and checks do not.
Even with their similarities, prepaid cards and credit cards have their differences.
Prepaid Cards:
Prepaid cards are available from many retailers. As the name indicates, a prepaid card is filled with money before it is used. Cash can be added to the card at kiosks and retailers that are participating. First, you choose how much you want to put onto the card, paying a small fee to add money. You can then use your card to pay your bills, shop online, or any other purpose. Each transaction can carry a small fee for the processing of the transaction, though this varies among card companies.
When the balance on the card is empty, the card will stop allowing you to spend money. Although you cannot spend more than what is loaded onto the card, in most cases, you can continue to load money in them for as long as you want.
A prepaid card also does not require a credit history. Anyone can purchase and load a prepaid card, even if they do not qualify for regular credit cards, checking accounts, or debit bank accounts.
Credit Cards
Credit cards are issued through banks and have a preset limit. The lenders will then check credit histories, job histories, income levels, and credit scores to determine interest rates and lending amounts. This leads to many applicants being denied credit cards due to their past mistakes or lack of a credit history.
Credit cards will often allow a user to go beyond their credit limit. In exchange for this service, a fee is added to the balance of the account. A user will pay interest for carrying a balance of purchases from month to month.
If someone loses their credit card, they can report the card lost or stolen. This process freezes the card and opens up an investigation about purchases from the time the card was lost. If the card is used without your permission or knowledge, you are not liable for those purchases.
Understanding the similarities and differences between regular credit cards and prepaid cards can improve your decision making. Selecting the right card for your financial needs can help save money today and in the future.