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.

RELATED TERMS
  1. Credit Card

    A card issued by a financial company giving the holder an option ...
  2. Prepaid Cards Processor

    A company that processes transactions for prepaid payment cards. ...
  3. Business Credit Card

    A credit card intended for use by a business rather than for ...
  4. Credit Card Balance

    The amount of charges, or lack thereof, owed to the credit card ...
  5. Subprime Credit Card

    A type of credit card issued to people with substandard credit ...
  6. Zero Balance Card

    A credit card on which a consumer does not owe any money because ...
Related Articles
  1. Personal Finance

    How Credit Cards Affect Your Credit Rating

    The average American household has four cards, but does that mean more is better?
  2. Small Business

    How to Use Small Business Credit Cards

    A business credit card can be a convenient way to increase your company's purchasing power, but must be carefully managed.
  3. Personal Finance

    Understanding Credit Cards

    Credit cards are a type of unsecured personal loan between the credit card issuer and the credit card holder.
  4. Investing

    Investing In Credit Card Companies

    This investment requires keeping an eye on consumer indexes and the overall health of the economy.
  5. Personal Finance

    How Many Credit Cards Should You Have?

    Having several credit cards provides many benefits. Here are a few factors to consider when you’re deciding how many credit cards you need.
  6. Personal Finance

    What Happens When Your Credit Card Expires

    You can take advantage of this process to learn about other cards that may better suit your needs.
  7. Personal Finance

    Terrible Credit Score? Try These Credit Cards

    When your credit is less than stellar you have fewer choices. But some are still better than others. Here's our read on which cards to get.
  8. Personal Finance

    Why More Millennials Need Credit Cards

    Here's why more Millennials should have credit cards – even though a majority don’t.
  9. Personal Finance

    Should You Use Credit Cards To Fund Your Business?

    We give you 4 reasons to consider using a credit card instead of a business loan to fund your business, and how to be smart about it.
Trading Center