5 Reasons You Should Not Buy a Prepaid Credit Card

Do not buy a prepaid credit card unless you have no other options to obtain a card payment system. It is not always possible to pay by cash or check, so most people need a card of some type to make standard purchases. A prepaid card, however, comes with a number of drawbacks that make it a less attractive option than a debit card or credit card.

#1 High Activation Fee

You will have to pay a fee to activate the card. You will never see this fee returned, and it is simply money lost for any future needs. The fee can be very high if you plan on having a high limit card. You will only be able to attain a high limit card if you place a large amount of funds on reserve with the company, since no credit is actually extended through a prepaid card.

#2 Not Universally Accepted

While most outlets that accept credit cards accept prepaid cards, not all do. Some restaurants and other vendors will turn down this form of plastic. You will be in the same position as if you came with cash, meaning the card will not solve the problem of lacking credit.

#3 Like Cash if Lost

If you lose your prepaid card, you will potentially lose all of the money on the card as well. These cards are treated like cash, and anyone picking up the lost card can spend the money. With a credit card, you will typically be offered protection from theft by filing a dispute of the charges. Prepaid card companies do not protect the funds the same way. Since most people electing these cards already fall into a low income bracket, it can be a very hard loss to take if the card disappears.

#4 High Reloading Fee

You may not want to load a high amount of funds onto the card at first, because failure to spend all of these funds may mean you simply lose the money. However, if you only place a low sum on the card, you will have to reload the card frequently. The result is recurring fees for reloading the card, and these fees can be rather high. Again, you are gaining no additional benefit from these fees other than the chance to spend your own money. If you are going to pay fees, like interest fees on a credit card, then you should at least be sure to gain other advantages, such as credit score boosts or rewards points.

#5 No Credit Benefits

Since you are not actually borrowing any of the money on the card, you are not increasing your credit score by using the card responsibly. People elect prepaid cards because their credit is too low to get a credit card. You will do yourself a bigger favor by simply applying for a very low limit credit card. As you manage those funds well, you will be able to ask for limit increases. Your credit score will go up, and you will eventually have more spending freedom.

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