Prepaid Credit Card

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DEFINITION of 'Prepaid Credit Card'

A card issued by a financial institution that is preloaded with funds and is used like a normal credit card. A prepaid credit card works in the opposite way of a normal credit card, because instead of buying something with borrowed funds (through credit), you buy things with funds that have already been paid. This card functions like a gift card.

INVESTOPEDIA EXPLAINS 'Prepaid Credit Card'

A prepaid credit card allows a person the convenience of a credit card without going into debt. You can use them to purchase items online or in person, but since you must load them with funds before using them, you never spend more money than you have. These can be effective tools to teach kids about credit cards without allowing them to irresponsibly rack up charges that they can't afford, or for those that have a hard time managing their finances and end up with tremendous amounts of credit card debt.

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RELATED FAQS
  1. What are the pros and cons of digital gift cards (e-gift cards)?

    Many retailers, both of the online and brick and mortar variety, offer consumers gift cards as a way to shop or give money ... Read Full Answer >>
  2. What transactions cannot be made using prepaid credit cards?

    It is difficult to rent automobiles using prepaid credit cards with many major American car rental companies. There are some ... Read Full Answer >>
  3. What is the difference between a prepaid credit card and a gift card?

    Gift cards are a popular way for a gift giver to ensure the intended receiver gets the desired gift. One no longer has to ... Read Full Answer >>
  4. How do prepaid debit cards work?

    Prepaid debit cards work almost like a combination of a credit card and a checking account. Prepaid debit cards are issued ... Read Full Answer >>
  5. How do I get a higher limit on my credit cards?

    Before applying for a higher credit limit, it is important to demonstrate responsibility. One way to do this is by making ... Read Full Answer >>
  6. Where are secured credit cards accepted?

    Secured credit cards can be used just like regular credit cards wherever credit cards are accepted. Secured credit cards ... Read Full Answer >>
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