Prepaid Credit Card

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.

BREAKING DOWN '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.