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Prepaid cards, debit cards, and credit cards all serve their own unique purpose. But what exactly are the differences - and benefits - of each?
On the ImageNPay blog this week, we're delving into the main perks of each of these payment methods.
Having previously debunked some of the most common myths surrounding prepaid cards, we felt it was important to illustrate how exactly a prepaid card differs from other types of cards.
And for transparency, we'll also be listing both the pros and cons of each!
Keep reading for the key differences between prepaid cards, debit cards, and credit cards:
1) Debit Cards
The one in this list that you're likely the most familiar with, a debit card is linked to your bank account and can be used to pay for goods in shops, online, and allows you to withdraw physical cash from ATM machines.
As you spend the money on your debit card, it's automatically taken from your current account - so you must have enough money in your account (or agreed overdraft) to afford the purchase.
Most debit cards these days are also contactless, so you won't need to enter your PIN if the purchase is less than £100.
What are the benefits?
Prevents debt - you're less likely to get into debt with a debit card as your card will be declined if there are insufficient funds
No monthly charges (although some current accounts charge extra fees for additional perks)
Good for smaller purchases
Easy to get - you can visit a branch or apply online and will likely be accepted
What's the downside?
Limited funds - unless you have an agreed overdraft
Overdraft fees (if opted in), and fees for going into an un-arranged overdraft
Usually issued a plastic card - bad for the environment
Requires a PIN (for transactions over £100)
2) Prepaid Cards
Prepaid cards are an alternative to using cash and don't require you to open a bank account - otherwise known as 'everyday cards'.
When loading your prepaid card, you load it with money (usually from your current account) and top it up again when the funds run out. Similar to a debit card, you can use your prepaid card to shop online and in-store.
What are the benefits?
Good for budgeting - you top up with the amount you choose
More secure than debit cards - not linked to your bank account, secure payments
No debt/interest fees - no risk of running up debt, therefore no interest fees for paying back money
No credit check required - easy to apply
What's the downside?
Spending limits set by you and various prepaid card issuers have different balance limits (although you can usually upgrade your card to get a higher limit)
Can't apply for credit or 'borrow' money
Monthly charges apply depending on the issuer/type of card
*Did you know that ImageNPay is the only UK issuer of a 100% plastic-free, digital prepaid card? Click here to find out more about what makes ImageNPay the eco-friendly choice for prepaid payments.
3) Credit Cards
A credit card isn't linked to your current account and allows you to buy things immediately that you then pay back at a later date. With a credit card, you are always 'borrowing' the money, and repayments can be spread across over a period of time or paid back in full when you choose.
Like debit and prepaid cards, they are accepted at most places both online and in-store and many credit cards also come with contactless payments.
What are the benefits?
High spending limit - good for bigger purchases
More time to pay/flexibility
If used responsibly, can be offered additional perks and higher limits
Can help build credit score
What's the downside?
Promotes overspending - increased risk of falling into debt
High-interest rates if balance isn''t paid off in full every month
Can subsequently hurt your credit score
You may not always be accepted when you apply (depending on the credit supplier)
The Verdict
Whichever card you decide is best for you (maybe it's a combination of all three!), it's important to be educated on the various pros and cons of each payment method - and always make sure you read the T'S and C's.
That said, if you're looking for a risk-free way to improve your budgeting skills and avoid debt, an ImageNPay prepaid card could be the perfect choice for you.
Click here to find out more about the benefits of prepaid.
With your very own ImageNPay customisable prepaid card, you can top up your card with the amount you choose, pay safely when shopping online, and even use contactless when in-store with Apple Pay.
Tap the button below to find out more and try ImageNPay for FREE today on iOS or Android.
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