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Disadvantages of Prepaid Credit Cards

26 July 2013

Prepaid credit cards can often seem like the perfect solution for those who have high debt, poor credit history, but still sometimes need to be able to use a credit card for things like reserving hotels or car rentals online. But nothing in life is perfect and unfortunately, that holds true for what may seem like the almighty prepaid card. Here are some of the drawbacks to using these cards, and how you might be able to avoid them.

High Fees

Prepaid credit cards don’t actually run up an outstanding balance and so, there’s no interest to be made by the credit card company, or the company that sold you the credit card. Because of that they need to charge fees wherever they can, and there are two main places where they’ll get you. The first is the initial set-up fee, which can be as much as $75 and if you’re not careful, a fee you could have to pay every year. Another place you’ll be charged fees is through every transaction you make. Often the company will charge you every time you use the card, which could add up to a high expense cost after you’ve gotten the card.

Little Protection

When you sign up for a card with Mastercard or Visa, you’ll most likely have some form of protection in case your card ever falls into the wrong hands. If a total is run up on your card you often won’t be responsible for those charges, especially for those made after you’ve reported your card stolen. And even if someone withdraws money out of an ATM, they’ll often have procedures in place that will get you your cash back safely.

With prepaid credit cards though, you don’t get any of this protection. You should still call the company and tell them about it, and you should also go to the police if a significant sum of money has been taken. However, they will most likely tell you that there’s little hope you’ll receive your cash back, and they’re also likely to tell you that any purchases made will also not be refunded.

Prepaid credit cards can often seem like the perfect solution when needed. But these cards aren’t always the best solution, even if that means just actually visiting a location and reserving the hotel room or car rental in person.

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