Pros and cons of prepaid credit cards: are they right for you?

Prepaid credit cards are becoming more popular, but they still come with many pros and cons to consider. Are they right for you and your needs?
Thanks to the convenience of being able to pay bills and shop online, more Canadians are opting to carry less cash. In addition to debit and credit cards, many are choosing to use prepaid credit cards. Is getting one a good financial decision for you?

Pros and cons of prepaid credit cards: are they right for you?

The facts about prepaid credit cards

Pros

  • You can only spend the prepaid amount. This means you can better control your spending habits. However, this also means the card won’t go through at the checkouts if you’re trying to exceed your limit—and that can be personally embarrassing!
  • They’re accepted everywhere, both locally and internationally. They are a much safer alternative to carrying cash or travellers’ cheques.
  • Because they’re not linked to your actual banking account, there’s virtually no chance of identity theft or credit card fraud. If your card is ever lost or stolen, you can usually transfer your money elsewhere without any fees.
  • Prepaid credit cards can be reloaded with varying amounts of funds.

Cons

  • The process of reloading prepaid cards can be slow and inconvenient.
  • They come with fixed exchange rates, so if the rate drops after you've loaded it, you will still be charged the higher rate.
  • There are usually some fees associated with prepaid credit cards. You will have to pay application fees, monthly fees, top-up fees, transaction fees and fees when used overseas.
  • Because they’re prepaid, you build less credit using them than you would if you used a regular credit card. However, they can help you rebuild your credit slowly if you don’t meet the criteria for a regular credit card.

When is a prepaid credit card useful?

If you’re travelling abroad or need to make a transaction overseas, you might find the convenience and safety enticing. Because they can be used anywhere, you can give a card to someone you love for any special occasion. It will allow them more flexibility when choosing what to spend it on.

If you’re the parent of a college student, being able to reload the card is a convenient way to ensure they have the funds they need for their books, tuition, meals and/or miscellaneous expenses. And because they won’t be able to overspend, it also allows you to better manage how much they spend.

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