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)?

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  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 fees usually come with prepaid credit cards?

    While prepaid credit cards differ in their fee structures, some come with fees to purchase the card, activate the card, add ... Read Full Answer >>
  4. 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 >>
  5. How have low interest rates affected lease rates in the automotive sector?

    Low interest rates have contributed substantially to increased lease rates in the automotive sector. In recent years, the ... Read Full Answer >>
  6. How often is interest compounded?

    Interest can be compounded on any given frequency schedule. Common interest compounding time frames are daily, monthly, semi-annually ... Read Full Answer >>
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