Though they go by the name “prepaid credit card,” the issuer of such a card does not extend credit to its cards; rather, the cardholder uses the card to access funds that they have already deposited. But it’s branded like a credit card and works like a credit card in all the ways that matter.
Prepaid credit cards, in contrast to debit cards, typically do not require a PIN. EMV-chipped prepaid credit cards are the one notable exception. If the transaction is to be processed using Chip and PIN technology, then a PIN will be required for these cards.
The cardholder can then add funds up to the card’s maximum value at the time of purchase and use the card as they would any other credit card.
Due to the lack of a credit line, prepaid cards can be issued to minors. Most notably, the cardholder is not needed to put up $500 or more to create an account.
Although there is no interest charged on purchases made with prepaid credit cards, customers are often charged an up-front fee and ongoing maintenance fees after a time grace period. A prepaid card typically has many other fees as well.
Teenagers are frequently targeted with advertisements for prepaid credit cards so that they can make purchases online without their parent’s involvement. By limiting their spending to what is stored on the card, teenagers are encouraged to learn how to budget their money and so lessen their chances of developing debt issues in the future.
Prepaid cards have worldwide acceptance. Payees in developing nations like Brazil, Russia, India, and China appreciate the prepaid card because sending money abroad via wire transfer or bank check is time-consuming, cumbersome, and expensive.