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One of the main advantages of having a prepaid card is that they offer the convenience of a credit card without the worry of penalty charges. But using a prepaid card may come at a cost!
Although there’s no risk of incurring high interest charges, as you’re not actually borrowing the money from a lender, and you can’t be charged late payment fees, your prepaid card may come loaded with hidden costs.
Here are some of the charges to look out for:
Application fees
When applying for a prepaid card you should be aware that some lenders may charge a fee for simply carrying the card.
In addition to an application fee, some card issuers may charge a recurring replacement fee when the card has expired.
This means that if your card expires and it is still loaded with money, you may have to pay a fee for a new card in order to gain access to your funds.
Loading fees
Before you can start using a prepaid credit card you must first load it with money and, as you are not borrowing money from the card issuer as you would when using a credit card, lenders cannot apply interest fees.
The way many lenders get around this is to charge you every time you load the card up with money.
This fee can come in the form of a flat rate or as a percentage of the total you are adding to your card so it’s worth weighing up whether it’s more cost effective to load up your card little and often or with one large deposit.
It’s also worth noting that this fee can vary depending upon the method you use to top up your card.
Transaction fees
When using a debit or credit card, transaction fees are passed on to the trader who will pay a certain amount to the lender every time they authorise a card transaction.
This isn’t the case with prepaid cards as the transaction fee is usually passed on to you, the card user.
Again, these fees can come in the form of a flat rate per transaction or as a percentage of the amount you have spent.
Withdrawal fees
All prepaid cards charge a fee for withdrawing cash at ATM machines so it is best to avoid using them for this purpose.
Inactivity fees
To encourage you to keep using your card, some card issuers will charge an inactivity fee if your card is not used for a certain period of time.
So, in effect, you get charged if you do use your card and charged even if you don’t use it!
Monthly charges
In addition to all of these fees, some lenders may charge a monthly fee for just for carrying the card!
In conclusion, whilst a prepaid credit card is a good way to rebuild your credit rating and is a handy budgeting tool, it’s worth keeping in mind that they may come at a cost.
So if you’re looking for a prepaid card, be sure to shop around and read the terms and conditions for each card you are considering – it might just save you some money.
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