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What is the Financial Risks when using prepaid credit cards?

Published on 10 March 2016 in M - Question and Answers by Raffick Marday

What the Financial Risks when using prepaid cards?

What Types of Cards Are There?
When considering adding a prepaid credit card to your wallet, determine between two types of cards: a bank-issued debit card, which you use like a regular credit card except payment comes out of your basic bank account, and a prepaid credit card, which you load with money and use until it runs out or add more money to its balance.

A basic bank account issued debit card offers a higher risk as unlike a prepaid credit card, you are in danger of spending over the amount you have in the bank. A basic bank account issued debit card doesn't have a limit or stopping point like a prepaid credit card, which will be refused at the point of purchase if you run out of funds. Instead, the basic bank account issued debit card will start to rack up overdraw fees.

One positive note for the basic bank account issued debit card is that people who are able to keep track of and replenish their bank accounts don't have to deal with carrying cash and have a receipt "paper trail" of all their purchases.

What's the Financial Risk?

While a debit card may seem like a less risky move than a credit card, which may provide a large amount of virtual cash to spend, debit cards carry their own risk as well. If you lose or card stolen, the criminal has access to all of the money in your bank account. This can leave you strapped for cash as the bank tries to determine who's at fault and recover funds.

Financial Risks when using prepaid cards

Every bank sets their own policy for debit card responsibility where some have a no liability amount. And some will have a liability amount and may even assess overdraft fees even if the card was stolen. Ask yourself whether you can handle the risk of losing the money in your account and inquire with your bank about its policies on stolen cards.

What Types to Expect?

Using a prepaid credit card may seem as simple as swiping or using a credit card. But the process comes with some side issues not tacked on to purchase with a credit card fees. Asking about prepaid credit card fees encompasses more than just a single question.

You'll first need to know whether your prepaid credit card has fees associated with the card itself. Such as fees for initially purchasing or loading the card. Fees for reloading the card, fees for not using the card for a specific amount of time. (Such as not making any purchases for six months) and fees for using the card overseas.

An article from the Compare Prepaid website warns that prepaid credit card users. Will also have to ask about fees when making actual purchases as well. Using your card to make a purchase may result in an added surcharge. Which you probably won't even see until you check your statement. With also fees associated. With answering "Yes" when that cashier asks if you want cash back with your purchase.

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