Prepaid credit cards function just like regular credit cards with one important difference. You won’t get access to credit, which means you can’t get sucked into a cycle of debt if you’re unable to pay your balance off on time. Instead, you’ll need to load money onto your card from your bank account in order to spend it. Find out more about how prepaid credit cards work and compare your options to find the best fit for your unique set of needs and budget.
Prepaid credit cards function just like credit cards in almost every way. The only difference is that you won’t get access to actual credit. Instead, you’ll need to load your prepaid credit card up with money from your bank account to make purchases. This allows you to avoid paying interest and keeps you from getting sucked into a cycle of debt that can be difficult to get out of.
Many prepaid cards let you earn rewards and some may even come with additional benefits such as purchase protection or extended warranty insurance. These cards can be a good fit for customers with bad credit, students or those who are having trouble qualifying for a regular credit card. They can also be a good option for customers who want to shop on a budget or set spending limits for their children or employees.
Prepaid credit cards vs debit cards
There are a couple of main differences between prepaid credit cards and debit cards:
Prepaid credit cards. These cards let you spend money online and earn rewards just like a credit card. That said, you have to load money onto them from your bank account and you can’t use them to withdraw money from ATMs.
Debit cards. Debit cards don’t typically let you spend money online or earn rewards. They’re directly linked to your bank account so you won’t need to load money onto them. You can use them to make ATM withdrawals and to carry out purchases in-store. Learn more about debit cards.
Types of prepaid cards
There are several types of prepaid cards you can choose from depending on what you want to use them for. These include the following:
Reloadable prepaid cards. Reloadable cards can be used to control spending for yourself or others. Simply load a balance and the cardholder can access it to make purchases wherever credit cards are accepted, both in-person and online.
Prepaid credit cards with rewards. These cards are prepaid but let you earn rewards as you would with a typical credit card. These rewards can be earned as points or cashback, depending on your preference.
Secured credit cards. Secured credit cards let you use your own cash to secure a credit card balance. You can then make regular payments to rebuild your credit score, which is a feature that’s not available with other types of prepaid cards. Learn more about secured credit cards.
Prepaid gift cards. Prepaid gift cards are typically not reloadable, which means once the balance is spent the card can be thrown out. These types of prepaid cards can be purchased with vendors such as grocery stores and aren’t suitable for ongoing use.
Prepaid travel cards. Travel cards are designed for spending money overseas. They may come with travel benefits such as no foreign transaction fees or the ability to load foreign currencies onto your card.
Business prepaid cards. Prepaid business cards can be handed out to your employees if you want to control their spending. This can give them an allotted budget for business expenses such as travel, accommodation or office supplies.
Prepaid Mastercard vs prepaid Visa cards
Aside from the number of different prepaid cards you can qualify for, you’ll have your choice of getting a prepaid Mastercard or a prepaid Visa card. There’s very little difference between these types of prepaid cards. The only time you would want to choose a specific prepaid Visa or prepaid Mastercard is if you shop regularly with a vendor that’s exclusive to one type of card. For example, Costco shoppers can only use Mastercard to pay for their purchases.
Prepaid credit cards by provider
You can sign up for a prepaid credit card with several providers. These include big banks, digital banks and private companies. It’s easy to compare the prepaid credit cards on offer from different providers by expanding the links below:
Big Five banks offer a number of prepaid credit cards to choose from. These prepaid cards tend to come without rewards or benefits.
If you tend to shop regularly at the same stores, you might want to check out these loyalty-brand prepaid credit cards:
PC Financial Prepaid Credit Card
Earn 5 points per dollar spent, low introductory balance transfer rate
Canada Post Prepaid Visa or Mastercard
Shop in foreign currencies
$15 to purchase, $3 to reload plus transaction fees
American Express Serve Cash Back
Earn 1% cashback on purchases
$7.95 per month plus $3.95 to reload
How to compare prepaid credit cards
You can compare a number of features to find the best prepaid credit card for you:
Monthly or annual fees. Some prepaid cards come with no fees while others will charge high monthly or annual fees. Try to avoid prepaid credit cards that come with fees unless they offer a high return on rewards or benefits to compensate.
Interest rates. You usually won’t have to pay interest rates on a prepaid card since you prepay the balance. The only time you would typically need to pay interest is on a secured prepaid credit card. Compare interest rates and make sure you’re not paying any interest if your card isn’t secured to help you build your credit.
Return on rewards. Many prepaid cards will give you a return on cashback or points, depending on what you’re interested in. Find the prepaid credit card that offers the best return on rewards in combination with a basic level of benefits to lock in the best deal.
Benefits. Most prepaid cards don’t come with any extra benefits but you might get lucky if you’re willing to take the time to compare cards. If you find a prepaid card with additional benefits, it’s definitely worth exploring. Benefits can include purchase protection, extended warranty protection and no foreign transaction fees.
Provider. When deciding on a prepaid credit card, you can choose from many providers. These include big banks, digital banks and private companies such as Canada Post or PC Financial. Look for a card with an establishment you trust and make sure the rewards are tailored to your lifestyle.
You can follow these steps to apply for a reloadable prepaid credit card:
Compare prepaid credit cards. Compare credit cards from a number of providers to find the one with the best mix of rewards and benefits for your personal situation.
Apply for the card of your choice. Apply for the credit card of your choice by visiting the main site of the provider you’re interested in.
Fill out application details. Fill out personal details such as your full name, address, email and phone number to start your application.
Click submit. Once you’re ready to apply, click submit on your application or call your credit card provider to apply over the phone.
Wait for your card to arrive. When your application is approved, your provider should send your card out in the mail or allow you to pick it up at a branch location.
You can also purchase non-reloadable prepaid credit cards and gift cards at grocery stores and with other eligible vendors. These cards aren’t personalized and you can typically load a balance at the till without needing to fill in an application.
Benefits of prepaid credit cards
Prepaid credit cards come with a number of benefits that make them a viable option:
No interest charges. You won’t have to worry about paying interest with most prepaid credit cards since you can only spend the money that’s loaded on your account.
Earn rewards and benefits. There are a handful of prepaid credit cards that let you earn cashback or points.
Easy to qualify. It’s generally very easy to qualify for a prepaid credit card (even if you have bad credit) since you’re not borrowing money when you make purchases.
Help you budget. You can load a preset amount of money onto a prepaid credit card to make sure you stick to a predefined budget.
What to watch out for
There are also a couple of drawbacks to consider before you sign up for a prepaid credit card:
Some cards come with fees. Many prepaid cards come with annual or monthly fees, though there are some decent options for fee-free prepaid cards as well.
No access to credit. You can’t use prepaid credit cards to spend money that you haven’t already loaded into your account.
Not designed to build credit. Most prepaid cards don’t help you build up your credit score. The exception to this rule is if you take out a secured credit card.
Limited benefits and rewards. The majority of prepaid cards come with limited benefits and rewards, so they may not be a good option if you want an all-inclusive card.
Prepaid credit cards are a good option if you want the benefits of a credit card without the worry. These cards can be a particularly good fit if you don’t want to pay interest or you’d like to avoid overspending on your account. Find out more about how prepaid cards work and compare prepaid credit cards to find the best fit for your unique personal situation.
Frequently asked questions
Yes. You’ll usually be able to qualify for a prepaid credit card with bad credit. This is because you can easily load money into your account and you won’t have to rely on borrowing money from your provider with these cards.
Not usually. The only time prepaid cards will help you build your credit is if they’re labelled as “secured credit cards.” This means you secure the balance you want to borrow with an amount of money that you prepay to your provider. When you pay off your credit card in full and you’re ready to close your account, this money gets returned to you.
With certain cards, yes. Many prepaid credit cards offer rewards such as points or cashback when you spend money. The only caveat is that the return on rewards that you get will often be lower than what you might receive from a regular credit card.
It depends on the type of prepaid card you want. If you’re looking for a reloadable, secured or business prepaid card, you can usually apply with big banks, digital banks and select private companies. If you just want to buy non-personalized gift cards to load money onto, you can find them at most major grocery stores and with multiple other eligible vendors.
Claire Horwood is a writer at Finder, specializing in credit cards, loans and other financial products. She has a Bachelor of Arts in Gender Studies from the University of Victoria, along with an Associate's Degree in Science from Camosun College. Much of Claire's coursework has focused on writing and statistics, with a healthy dose of social and cultural analysis mixed in for good measure. She has also worked extensively in the field of "Blended Finance" with the Canadian government. In her spare time, Claire loves rock climbing, travelling and drinking inordinate amounts of coffee.
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