How Does a Prepaid Card Work?

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By LaToya Irby. Credit/Debt Management Expert

Welcome to About.com's Credit/Debt Management site, led by your guide, LaToya Irby. LaToya has been the credit and debt management guide since 2007. Read more

There are many situations where not having a credit card is an inconvenience. Car rentals, hotel reservations, and airline bookings all require a credit card and if you can’t get one because of limited or bad credit. then you’re in a bind. This is where a prepaid credit card can be beneficial.

How Does a Prepaid Card Work?

With a prepaid credit card, you deposit money onto the card, sort of like a gift card. Then, as you use your prepaid card. the amount of your purchases is deducted from the balance reducing the amount you have left to purchases.

Let’s say, for example, you deposit $300 onto your prepaid credit card. After paying $150 for a car rental, you’d only have $150 left to spend. Once you’ve used your entire balance, you have to reload more money onto your prepaid credit card before you can use it again.

How Much Does it Cost?

Prepaid credit cards come with a lot of fees. For example, the Account Now Prepaid Mastercard. has a activation fee of $9.95, a monthly transaction fee as high as $9.95, up to $4.95 to reload money onto the card, $1 fee for making PIN purchases, $1 fee to check your balance at an ATM, $2 fee to talk to a customer service representative, and a $2 fee to withdraw money from an ATM (in addition to the ATM’s fees).

Source: credit.about.com

Category: Credit

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