Prepaid credit cards

Offering the convenience of a credit card, but with fewer hassles, a prepaid card is an alternative option for managing your money. Whether you’re spending at home or overseas, or offering money as a gift, it’s important to compare the prepaid card options to work out the best choice for you.

Technically, prepaid credit cards aren’t credit cards at all, as you don’t borrow any money and aren’t charged any interest. Instead, they work more like debit cards that come pre-loaded with a balance of money. These cards can be used just like a typical debit or credit card, such as when buying goods and services in person, over the phone, or online.

That said, these prepaid cards often utilise existing credit card payment processing networks, such as Visa and Mastercard. This means these cars are typically accepted anywhere you can use a standard credit or debit card (though exceptions may apply).

Many prepaid cards (such as gift cards) come loaded with a pre-set balance, which can’t be topped up again once it’s been spent. However, some can be topped up with money from your bank account, so the card can be re-used for as long as it’s valid and has an available balance.

Prepaid cards can be purchased from post offices, supermarkets, or other retailers, or ordered from banks and other financial institutions.

• Young people: Kids who are first learning about money may be able to get the credit card experience from a prepaid card, minus the risk of overspending or going into debt.
• Travellers: Some prepaid cards are structured with travellers in mind, capable of being loaded with money in different currencies and offering access to useful benefits while on holiday, such as Wi-Fi hotspots.
• Gift-givers: Looking for a present for the person who has everything? You could give a gift card instead of an envelope of cash.
• People with credit problems: If you have a bad credit history, you may not be able to get approval for a traditional credit card, but a prepaid card may offer a convenient alternative way to make card-based payments.

• Harder to overspend: Each prepaid card has a maximum balance, which caps how much you can purchase with it. Not all prepaid cards can be topped up either, so there are hard limits on how much you can spend. This can help to reduce your risk of spending too much, or borrowing more than you can afford to repay and getting stuck in a debt spiral.
• Separate from your bank accounts: As prepaid cards aren’t linked to your bank account or your credit file, the chances of scammers, fraudsters or hackers stealing your money and/or your identity can be reduced.
• No credit checks: Unlike a typical credit card, where the lender will look at your credit history when assessing your application, anyone can use a prepaid credit card. Even if you have a bad credit history, that doesn’t mean you have to be locked out of credit card transactions.
• Travel benefits: Some prepaid credit cards can be loaded with money in local currency when you’re travelling. Travel cards are also likely to be accepted in most locations where credit cards are accepted.

• Fees and charges may apply: Prepaid cards don’t charge interest, but in some cases they do charge a fee. This can add to the cost of using the card, which may not always be worth it.
• Not accepted everywhere: While prepaid cards can typically be used anywhere that accepts their payment processing network (e.g. Visa or Mastercard), some retailers and other businesses may choose not to accept payments via prepaid cards. This may include some hotels, meaning that it may be worth checking before you book if you’ll need to organise a separate credit card.  
• Treated as cash: An unregistered prepaid card is effectively considered cash, where anyone who holds the card may be able to use it. If these cards are lost or stolen, you may not always be able to get the money back.
• Linked to scams: Because prepaid cards can be used like cash, scammers and fraudsters often try to trick unsuspecting victims into using them to transfer money. Be wary of any requests for payments in the form of gift cards or other prepaid cards.
• Doesn’t affect your credit score: While borrowing and repaying money with a typical credit card can help to improve your credit score over time, thanks to Comprehensive Credit Reporting (CCR), prepaid credit cards don’t affect your credit score.
• Miss out on points and benefits: While some prepaid cards offer some special features and benefits, you’re less likely to enjoy the benefits you might with a typical credit card, such as complimentary travel insurance.
• Restricted to some retailers: Some gift cards are intended to be used exclusively at a particular retailer, such as a supermarket. While this can be very useful for shopping at this business, they can’t be used elsewhere.