In fact there is quite a bit of a difference between debit credit and prepaid cards, and not many people understand the key difference and what is offered.
Below you'll find a table which shows the main difference between debit, credit and prepaid cards:
|How do I get one?
||Apply at the local branch of your bank. Complete application form bringing ID and proof of address.
||A credit check must be carried out for eligibility; if you have a bad credit history your application could be rejected.
||Guaranteed acceptance – no credit checks and easy to purchase, simply apply online in most cases.
|How does it work?
||Linked to your bank account, which is usually your main source of funds and where your salary is paid into
||Agreed credit limit up to which you can spend and pay back later (usually monthly)
||Funds are loaded onto your prepaid card from your bank account, salary, debit/credit card or cash at a PayPoint or Post Office.
|How do I use it?
||As your debit card is linked to your bank account you spend from the funds in your account so you must be sure of the balance in your account as it is possible to become overdrawn and incur charges.
||You spend upto your agreed credit limit and you will be charged interest if you do not pay back in full at the end of each month.
||Prepaid only allows you to spend the amount loaded onto the card. You cannot be overdrawn, therefore, this helps you to avoid expensive overdraft fees and remain in control.
|How much does it cost me?
||Usually free with your bank account, however fees may be charged at certain ATMs. No interest charges on purchases.
||Usually no application fee, but there are annual or monthly charges. In addition, as the money is borrowed you will incur interest charges. Credit Cards will charge high percentage fees for withdrawing cash from ATMs.
||All prepaid cards vary in their charges, there are one-off application fees and/or monthly fees. In addition small charges can be incurred for usage (e.g. ATM and load charges)
|Am I protected?
||Since your debit card is directly linked to your bank account, there is a risk of a large amount of money being withdrawn. If you are a victim of fraud you will not be expected to pay. However it is advised to check with your bank to see what level of protection they offer. See Financial Fraud Action UK on how you can protect yourself.
||Purchases between £100 and £30,000 made on a credit card are protected under section 75 of the Consumer Credit Act. If the retailer has a fault with a product or goes into administration you and the card company are ‘jointly and severally liable’. Therefore, your card company is liable for the costs and will compensate you.
||Prepaid cards have the advantage of ‘damage control’ since one can only spend what is available on the card. You are protected from fraud under the chargeback cover.
||Instant access to bank account for everyday expenses.
||If making big purchases you are protected. Buy now and pay later
||Alternative to traditional banking without risk of personal debt
Have we missed anything or are you still usure? Comment below.