subject: Pros And Cons Of Prepaid Credit Cards [print this page] There are a number of ways to get cash in a pinch, even if you have less than stellar credit. One popular way to access needed money, as well as restore your credit rating, is through a prepaid credit card. There are a number of these products available today, helping you choose the best deal for your needs.
However, is a prepaid credit card the best choice for your financial crunch? Read on to see if this option is the right one for your specific situation.
What is a Prepaid Credit Card?
A prepaid credit card is a card that requires a deposit in an account that is used as collateral for the credit amount. For example, if you want to make a $500 purchase using your prepaid card, you must first deposit $500 into an account connected to the card. In some cases, the company that issued the card will allow you to deposit additional funds to get more credit on the card. Some even provide additional credit above the amount deposited into the account for customers in good standing.
These cards are issued through a variety of banks and credit companies, allowing you to shop around for the best offer. Most will charge a fee to establish the account and may also charge customers to use the card or deposit additional funds into their account. Some banks also charge a fee to apply for the account or an annual fee to keep the account open. Because the fees vary widely, it is a good idea to shop around for the best deal before selecting a company.
Benefits of Prepaid Credit Cards
Most people open a prepaid credit card because their credit ratings do not allow them to have traditional credit accounts. This card can be used to book hotels and rental cars, just like a regular credit card. In some cases, prepaid accounts can also be used to help a person reestablish credit after going through a bankruptcy, foreclosure or other situation that was detrimental to his credit rating.
Disadvantages of Prepaid Credit Cards
While there are numerous advantages to applying for prepaid credit cards, there are also some disadvantages with these accounts, including:
It can be difficult to find a bank that offers prepaid credit cards in today's economic climate, limiting the competitive edge and choices for customers.
Prepaid cards are not accepted through all merchants due to the risks that may accompany them (when the money is depleted from the account, the credit card bills cannot be paid).
There are often significant fees involved with establishing these accounts, making them expensive for customers who are already in a tight financial bind.
Customers must follow their accounts online to track spending and current account balance.
While prepaid credit cards are a good choice for many individuals today, they are not right for everyone. Some may find that an emergency loan or line of credit is a less costly way to get much needed cash quickly. It is important to understand the basics of prepaid credit cards, as well as other types of emergency loan products, to determine which solution will be the best choice for you.
