What Is Prepaid Cards? What Are The Problems With These Cards?

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Prepaid cards are like credit cards the only difference is that, before a prepaid card can be used, you load it with funds so that you can spend those funds over time. Prepaid cards work like credit cards when you're shopping. While using prepaid cards, you are using your own money, instead of borrowing money. Prepaid cards look like standard credit and debit cards. Prepaid cards are plastic cards with a magnetic stripe.

To spend money with a prepaid card. First, the customer needs to load the card with money. Know the problems with Prepaid Cards: 

Consumer protection

Prepaid cards do not provide as much protection to consumers like credit and debit cards. You don't get the same level of protection of credit and debit cards in case of fraudulent activities.


Prepaid cards charge a lot of fees. Your prepaid card may charge these fees listed below,

  • Initial setup fee
  • Monthly maintenance fees
  • Fees for using an ATM
  • Fees for reloading money onto the card
  • Fees for checking your balance

You might have to pay every time you use the card or speak with customer service. Some Prepaid cards charge monthly maintenance fees as well.


No Credit History

Prepaid debit cards are transactional cards. Prepaid cards cannot help you build a strong credit history. While using prepaid cards, you are not using a line of credit and don't need to pay a monthly bill to repay a debt. Your activity is not reported to credit reporting agencies.

No savings

Prepaid cards make it easy to spend money; it's hard to save money unless you have a bank account. If paying a few extra money in bank fees means you'll accumulate savings throughout the year even if it's just a mental trick to get yourself to save it's probably worth the cost.


Prepaid cards are supposed to use your money not a lender's. The idea is that you stop using it when you're out of money. But some cards encourage you to spend more than you have by allowing overdrafts (with steep fees). If you don't load the card yourself - if you get it as an advance on your tax return, for example - you're borrowing money and paying to do so.


Read more about: prepaid cards
Story first published: Tuesday, May 16, 2017, 12:53 [IST]
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