Prepaid Cards: Advantages and Disadvantages

Prepaid Card

Prepaid cards are quite popular in various countries. It is opted by individuals who cannot qualify for a debit card through your traditional checking account or credit card. There are advantages to prepaid cards and they are popular with people looking to limit their spending, including parents who teach children about money or people with debt problems.

Here we explain the advantages and disadvantages:


There is no need to open a bank account or make a security deposit as you would with a secured credit card. A prepaid card can be used as if you were writing a check or as a debit card.

There are no interest charges like credit cards nor can you overdraw funds. If you have reached the funds limit, the charge is likely to be declined. However, there are prepaid cards that allow overdrafts but are few. Carefully managed, a prepaid card allows you to avoid debt because you can only spend what you have.

There is no credit check for this type of card. If you don’t have credit or have low credit, it doesn’t matter. The important thing is that you have the cash to recharge your card and start using it.


One of the big disadvantages is that you may not be able to use it to reserve a car or book a hotel.

A prepaid card is generally more expensive to use than a debit card or checking account. Fees, often applied to open the card, maintain the account, charge money, or use it for purchases, vary but can be high.

They have fewer consumer protections than credit cards, particularly when it comes to fraudulent transactions.

It doesn’t help you build a credit history like credit cards.

When to prefer a prepaid card

Prepaid cards are excellent if:

  • You don’t qualify for a bank account
  • You have bad credit or no credit
  • Advertisements
  • You want to control your expenses
  • You want to give money as a gift
  • Want to help someone learn how to manage money responsibly

Before applying

It is important to read all small print carefully on card offers. Compare any fees involved, including monthly maintenance fees, activation fees and ATM usage fees. If you use a card that allows you to spend more than you have deposited, you could incur high overdraft fees, so be sure to be aware of what this implies.

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