A debit card requires a savings account or a checking account to be established, much like a secured credit card. The bank then issues you a debit card. Most debit cards bear a Visa or MasterCard logo, and look and feel just like a credit card. In stores or online it can be used just like a credit card. For convenience of use, there may be no difference at all.
Most of us know that the way a traditional credit card operates is that your credit is reviewed and you are approved for a credit amount limit. You are then given the card and allowed to freely charge whatever you want and make monthly payments on it later.
If you happen to be a person with negative credit, getting approved for a credit card this will be very difficult.
Prepaid debit cards operate very differently. They are also known as prefunded cards, or reloadable cards. The difference is that a money account is directly attached to the debit card.
You established an account that you put money in to. It is usually held at a bank that is FDIC insured. Therefore your money is protected just like a regular bank account.
However, they are not like traditional bank account. It is very unlikely that the particular bank will be located anywhere near the same state and city that you live in. In addition you can not make routine withdrawals from the account.
Instead a debit card with either a Visa or MasterCard logo is issued to you with a limit that directly matches the amount you put in to that account. This is why they are called prepaid or prefunded debit cards.
They look just like regular credit cards. They can be used just like regular credit cards. The main difference is that each charge or purchase made is a direct deduction from the amount you had put in to the account. The balance that remaining in the account is also the limit that remains on the card. For example, if you sign up for the service and establish an account by funding it with $300. Then you will immediately be sent a debit a card with a $300 limit.
Then when you use the card to make a $50 purchase. Your account is equally deducted by $50 and there will be a $250 limit remaining on the card. Subsequently, if you make a payment of $25 then your account balance increases to $275. Now you can charge up to $275 on the debit card.
There are absolutely no credit checks and everybody is approved. Because of the way prepaid debit cards operate it compels them to be used more responsibly. There are no overdrafts or over the limit fees. If you attempt to charge something that exceeds the current account balance it will be the purchase will declined.
Because of these characteristics of prepaid debit cards they are a good option for people who know they have negative credit reports.
One differences that consumer advocates feel is very important to know is the level of fraud protection. Typically with traditional credit cards, if it is lost, or stolen, you are only responsible for the first $50 of fraudulent charges. However there is no such protection with debit cards. So it is extremely important that you contact them immediately to have the card cancelled and replaced when you discover it lost or stolen.
Here are a couple of additional pros and cons of using a debit card:
Pros:
* Easy approval process, no credit checks, a simple solution briansclub cc for people with bad credit
* Same acceptance as any Visa or MasterCard
* Get money from ATM machine
* Has a routing and account number which means you can easily set up direct deposit of your pay check
Cons:
* There is usually a one time fee to establish the account and activate the card
* Just like with credit cards there is usually a cash withdrawal fee when using a ATM
* Not the same fraud protection as with traditional credit cards
* Some prepaid debit cards do not report your payment history to the credit bureaus, so they don’t help to repair credit
* Even though it seems like you are charging against your own money, the card company says it is a matching amount but not the same money. Therefore there is interest on your charges.
One thing to keep in mind is that the prepaid industry is growing and very competitive. So some of the companies are starting to offer more features that prepaid debit cards did not have before like the option of overdraft protection, a certain amount of free ATM withdrawals, fraud protection, etc. This check out the benefits that a particular card is offering.
In summary, a prepaid, or prefunded, or reloadable debit card allows you to only spend up to the amount you have pre-deposited into an established account. If you tend to overspend or would like to control your spending then a prepaid debit card could be a good solution. It will help you to better manage your money. They are also a great alternative for people with bad credit to get a Visa or MasterCard.
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