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Prepaid Debit Cards Versus Credit Cards: What’s the Difference?

There’s no denying credit cards and the best prepaid debit cards share several surface similarities. In most cases, both are associated with major credit card companies like MasterCard or Visa and even carry its logo.

However, as far as where the money is drawn in case of purchases, there’s a huge difference between credit and the best prepaid debit cards.

When a prepaid debit card is used, the money used for any transaction is deducted directly from the available balance on the card. On the other hand, for those who use credit cards, cardholders will be charged to a line of credit and users will have to pay at a later date.

The Lowdown On Prepaid Debit Cards

Prepaid debit cards work pretty much like a combination of a credit card and a checking account. They are issued by bank holding firms and branded by huge credit and financial institutions like Visa, Discover, and MasterCard.

Just like a gift card, users need to load money on the prepaid debit card before it can be used. The card is then used almost like a credit card and is accepted and honoured in a lot of places where credit cards are accepted.

While prepaid debit cards are similar in a way to credit cards in terms of usage, its financial aspect is more similar to that of a checking account. In other words, money spent will be deducted from the total balance that’s available on the card. This means the cardholder does not have any ability to spend beyond the balance that’s available on the card.

Prepaid debit cards are also considered a good alternative for those transactions where credit cards are normally required. That being said, they are especially beneficial for people who have poor credit scores, those who don’t have access to banking services, and those who don’t know how the banking process works.

Over the years, prepaid debit cards have successfully replaced cash as the more preferred gift option thanks to all the peerless benefits they offer. In addition, unlike gift cards, users can use their prepaid debit cards to withdraw money from ATMs.

The Lowdown on Credit Cards

In a nutshell, a credit card is a financial tool issued by banks that enables users to borrow funds from them. The funds are either withdrawn as cash or used as payment for services and goods. Credit cardholders are required to pay the borrowed amount (plus interest and other transaction fees) each month.

In some instances, credit card providers will grant users a line of credit (LOC). The LOC will allow uses to borrow money as a cash advance. Typically, the borrowing limits granted to the user is dependent on the credit rating of the cardholder.

Compared to other lines of credit and consumer loans, credit cards have a higher APR or annual percentage rate. In addition, interest charges on any unpaid balance is also added a month after the purchase transaction.

However, credit cards are still considered one of the most popular forms of payment available as nearly every business accepts it for payment of goods and services.

preethi
Preethi is an international Finance Analyst and author of several publications on Business development. Preethi is a regular contributor to online article sites on the topics of online Marketing and Finance excellence.

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