Whether you are paying for something online, or standing at a store counter, paying with plastic is always much more convenient.
Depending on your credit history, credit cards can be hard to get. This is because they require a thorough credit check before approval.
Fortunately for you, there are many other options out there.
Have you ever heard of a prepaid card? It may appear similar to a credit card, and even seem to work the same, but these are two very different cards, and even their approval process is quite different.
What is a prepaid card?
A prepaid card is like a gift card. It has been loaded with money in advance for you to use. It is sometimes referred to as a ‘reloadable card.’
It will require you to pay money upfront, which is loaded on the card, and when there is no money in the card, you cannot be able to swipe it when shopping to make purchases. This is similar to having cash on hand for making purchases.
Once the money on the card is depleted, you shall be required to load it up again in order to use it.
I have highlighted the Capital One prepaid card in this review, so that you can understand how it works and why these cards have been gaining popularity in recent years.
But, before I explain this to you, here is some information you may need to know about prepaid cards;
- Since they do not affect your credit, prepaid cards cannot help build up your credit score.
- If the card is lost, you may have no protection against fraudsters.
- Some companies charge fees for loading the card, so ensure to keep that in mind while considering the card that you wish to have.
- They sometimes have an expiry date, and you may want to keep this in check when you get the card and while using it.
- They cannot be used unless you have funds on the card.
Differences between a prepaid card and a credit card:
A prepaid card is similar to your ATM card. It is a card that allows you to pay for purchases and works almost identical to a credit card, but the only difference is that the prepaid card draws money directly from your account or the card if you have loaded it when using it. This is the same as withdrawing cash from an ATM.
What happens is that; whenever you purchase with the card, the bank places a hold on the amount of purchase, and then the merchant sends the transaction to the bank, who will transfer funds from your account to their account.
The beauty of a debit card is that it doesn’t accrue any interest on money spent, and you do not owe anyone anything at the end of the month.
A credit card, however, is a card you use to make purchases with money that you don’t have. This means that the card allows you to borrow money against a line of credit. This line of credit is known as the “card’s credit limit.”
You can make as many purchases as you wish on your card, as long as you do not exceed the credit limit. These transactions shall be reflected on your bill, which you shall be required to pay at the end of the month.
It is important to note that you shall be charged interest on the money you spend on the card per month, but if you do not purchase anything with the card, there shall be no charges.
Credit cards do tend to have high-interest rates, and in addition, the credit card balance and your repayment history will affect your credit score. A credit score is a 3-digit number that is given by credit bureaus, to summarize your credit history.
This, therefore, means that; if you do not pay the card on time, and end up with too much credit card debt, your score shall be negatively affected.
Understanding the Capital One Prepaid Card
Capital One recently launched its reloadable prepaid debit master card. This is a secured card that allows you to make purchases online or in person, just like the traditional credit card that you have been used to in the past.
The difference with this card is that you must first deposit money on the card and then use it for purchases.
Initially, the debit and prepaid debit cards were created and marketed to people who were looking for a second chance after they had messed up their credit report, and it used to help them build their credit by ensuring that they do not take any more loans or apply for credit cards.
Recently, people have started appreciating the benefits of a prepaid card which includes;
Prepaid cards do not require any credit checks:
This means that you immediately qualify for the card without having to wait for some time for your credit check to go through.
When you apply for a standard credit card, the bank you use will need to check your credit history, and if you happen to have made some mistakes in the past such as bouncing a check or not paying a loan in good time, or even neglecting a bill, you might end up being denied.
This prepaid master card by Capital One is also ideal, because you will not go through a credit check for approval, and since it is a master card, it will allow you to do anything that a credit card would do.
This is one of the reasons why reloadable credit cards have grown in popularity like wildfire.
They allow you to make direct deposits:
Traditionally, it may take up to 2-3 days for you to access money, especially if you have made a check deposit. This could be quite tedious if you wanted to use the funds immediately.
With a prepaid card, deposits are instantaneous, and you can access and use the card immediately for online purchases, or even when you want to make a direct purchase from a store such as Walmart.
You can make online purchases with the card:
Online transactions tend to be feared because of the number of frauds going on in recent years. This will, however, become a thing of the past because a prepaid card allows you to use a pseudo card instead of the real card for online transactions.
In addition, these cards come with a cash limit, which means that in case the card is stolen, you will only lose what you had loaded on the card.
With a normal credit card, you may lose thousands of dollars because this is money you use on credit.
How does it work?
I have already touched on this. A prepaid card requires you to load some money onto it before you can make any purchases. This can be done by use of direct deposits where you deposit the money at a Western Union, or by transferring money from your bank account onto the card.
It does not have an activation fee, and the card is protected with a $0 fraud liability in case of theft or if you lose the card. The money you deposit on the card is FDIC insured, and you shall only be required to pay a monthly maintenance fee of $4.95.
If you sign up for a free text or email alerts on your card activity, you shall be assured of constant updates on your card, which allows you to rest easy, as you will always be alerted whenever a transaction takes place, which keeps you on top of any fraudulent activities.
In addition, you will never be charged an overdraft fee, or late payment fee or any interest fees ever!
It could prove interesting to see if Capital One begins to market their other lousy credit cards to the prepaid cardholders. If you have not heard Capital One purchased HSBC and the Orchard Bank credit card.
In other words, Capital One has staked an even bigger claim in the bad and no credit industry. To qualify for approval, you must be 18 years of age and have a verifiable identity, Social Security number, and U.S. Mailing Address.
Features of this card:
- It doesn’t have an annual fee and no interest charges. This is because when using the card, you are utilizing the funds that you have already deposited on the card.
- When used responsibly, this card can build your credit. This is a unique feature that you may not find with other prepaid cards.
- Can be used on any platform that requires the use of a MasterCard or a Visa card.
- It is very easy to get and will only require you to fill up a form.
- Can be used with children when you want to control their spending habits.
Other blogs that can help you with this topic includes the best prepaid cards and the Citi prepaid card. They both explain more about prepaid cards and why they have become extremely popular in recent times.
The use of prepaid cards may not be as popular as regular credit cards, but it is one of the best ways you can use to limit your spending, and ensure that you do not get into debt.
It is a well-known fact that one of the reasons why most Americans have bad credit is due to their credit card bills. A credit card gives you access to money that you don’t have, and this is why it is incredibly addictive and tempting. In most cases, it leads to impulse buying, and as a result, you end up with a huge bill that you cannot be able to repay. This is the beginning of your downfall.
In order to ensure that you keep your finances in check and that you are in a position to budget your money, choose to use prepaid cards for your whole family, as this will keep you within your abilities, and ensure that you do not spend money that you do not have.