Pitfalls to Look Out for with Free Prepaid Credit Cards
There are pitfalls to look out for with free prepaid credit cards because "free" doesn't always indicate no strings attached. The rapid growth in use of prepaid credit cards allows you to easily find such offers. If you purchase the first prepaid account you find, you may pay more than necessary for that offer even though it is advertised as "free".The highly competitive field of prepaid credit cards today means that advertising claims should be carefully verified and compared against other offers if you want to get the best deal possible.
What is the Meaning of "Free"?
It is normal for prepaid credit cards to have a fee that pays for the initial card (or for activation of the card), a small fee to add funds and a small monthly maintenance or carrying fee. Those are to be expected as the card issuing institution needs to have some profit motive to offer any product to the public.
You may pay from $3-8 initially when you buy a prepaid credit card. In addition, there may be a $3 charge to add funds to that account. Some of the largest issuers also have a $3 monthly fee for maintenance.
On such an account if you add funds monthly, the carrying costs for use of your prepaid credit card may be as low as $6 per month. That is reasonable by any standards and a great savings over the interest, late fees and over limit fees of regular credit cards.
Stretching the Truth for Free Prepaid Credit Cards
If any service on a card has no charge, the company can advertise "free". That doesn't mean you can get a prepaid credit card, fund it and use it for purchases without paying something to the company issuing the card. Most often, the free prepaid credit cards advertised actually means "no payment when you buy them".
You can get the card itself free but may have to pay an activation fee to use the account. Is that free? Not really. Another way to make a prepaid credit card look like a great deal is claiming "no annual fees". Truth is, prepaid credit cards do not have annual fees. They do have monthly carrying fees.
Pitfalls of Prepaid Credit Cards
Your card will not be as usable if it cannot be quickly and easily re-funded. Many issuers now allow you to fund the card through direct deposits from your paycheck. This can be a boon for you if you choose a prepaid account that waives fees if you deposit automatically each payday.
Other prepaid issuers will waive monthly carrying fees if you routinely place $1000 in funds on the card each month. If you use the account for many purchases, that might be a great option for you.
The most dangers fees are transaction fees and these should be avoided. A card that is free to get is not a deal if you must pay a fee each time you make a purchase with that card. Although the transaction fee may only be $1, that can add up to a significant amount each month if you use your prepaid card frequently.
Previously we mentioned that some prepaid credit cards will have fees as low as $6 a month if you add funds monthly. With a card that charges a transaction fee, the fees listed may seem lower with only a fee of $4.95/month and no fees to add funds. If you use your card 10 times a month, that would make the cost of use $14.95 a month. For a prepaid credit card, that is excessive.
Other Fees To Look For:
- Fulfillment Fee - the card and activation may be free but there might be a $10-25 fulfillment fee to send you the card in the mail.
- Replacement Fee - if you lose a prepaid credit card you may have a $6-10 fee to replace it while other issuers will replace the card for free.
- Setup Fees - A prepaid credit card with no monthly fee and no transaction fees may have a setup fee (similar to an activation fee) of $9.95-$12.95. This may be a good deal if there are no transaction fees but you need to compare the total cost per month carefully.
Conclusion
Prepaid credit cards are in demand today. Due to that, lenders are adding free options in order to sell you their brand of prepaid credit account. Read all of the fine print before applying for the so-called free prepaid credit cards.
It is possible to add funds once monthly and use the card for as many purchases as you want for a monthly fee of $6 plus an initial small fee to open the account. Comparing offers carefully you can avoid all the pitfalls to look out for with prepaid credit cards.
