Reloadable Prepaid Debit Cards: Not always as convenient as a regular credit card

January 4, 2008

Reloadable prepaid debit cards (a.k.a. prepaid credit cards or stored value cards) offer the convenience of a credit card to those who are trapped in credit card debt and are unable to get a regular credit card. While prepaid debit cards offer great features, there are some instances when they don’t work quite as well as a regular credit card. Knowing these differences can help you have a much more pleasant experience with prepaid debit cards.

Accepted everywhere Visa is accepted??? Almost!
Prepaid debit cards normally have a Visa or Mastercard logo on them. However, they really are debit cards, not credit cards. The prepaid visa cards say Debit on them – they’re accepted wherever Visa Debit is accepted (note: not wherever Visa is accepted).
Where could you run into a problem with this? The most common example would be car rentals. Some locations of some car rental companies do not accept prepaid debit cards. If you’re planning to use your card to rent a car, call up your card’s customer service to make sure that you can rent a car with it. Also call up the rental car company at the location you are going to pick the car up from and ask them if they accept debit cards.
Sometimes the card issuer may restrict usage of your prepaid debit card. Common examples are car rentals and pay-at-the-pump at gas stations. They do this because they can’t be sure of what the final amount is when they’re asked for an authorization. For example, you may have $20 on your card, but you could fill $10 or $30 of gas. Since your card company doesn’t know how much you’re going to need, they may not allow you to pay at the pump… but you could pay at the counter for gas. With car rentals and hotels, the company isn’t sure exactly when you’ll return the car or how long you’ll actually stay in your room.

You can’t always use the money on your card.
If you can’t use the money you’ve put onto your card, it can be very frustrating. This is likely to happen if a merchant swiped your card a few times for one purchase, if you started a purchase but didn’t finish it or if you’ve used your card for gas a pump.

There are 2 reasons why this happens. One is because of the way prepaid debit cards process authorization requests. When a merchant swipes your card, they’re asking for an authorization for a certain amount. Once an authorization has been provided, that amount of money on your card is held for that transaction and not available to be used anymore. The merchant completes the transaction with a settlement. If the merchant doesn’t send in a settlement, the hold on the funds could last a few days. If the merchant had swiped your card a few times, there could a few holds for that one transaction.

The other reason you could get stuck without being able to use your money is because of what is called tolerances. A few card issuers will hold more money than is requested during an authorization. They’re likely to do this for purchases at restaurants, bars, pay-at-the-pump purchases, car rentals, hotels and cruise lines. If you use your card to pay at the pump, some cards will hold $30 when you put your card. Even if you filled gas for only $10, the $30 will be on hold until the gas station settles – which may not be the same day. So if you’re planning to go out for dinner that night, make sure you have enough to cover the hold and more.

You’ll have to pay to use your card.
While you can find free credit cards and even credit cards that pay you to use them, it’s almost impossible to find a free re-loadable prepaid debit card. Think of this as the price to pay for the safety of a prepaid card or of not being able to get a regular credit card. It may even be less than the finance charges you’ve paid on your card!

A good way to calculate how much a prepaid debit card will cost you is to first think about how you’re going to use the card. For example, if you think you will use it at an ATM 3 times a month, at stores 10 times a month, add money to the card twice a month and call up customer service once a month, you can add up the cost of each of these. Don’t forget to add any monthly fees or start-up costs to get to your annual costs. If your planned usage is similar to the example, an annual cost of $200 is reasonable for a prepaid debit card – $15/month and $20 to get you started. Make sure to carefully read the fees table before you get a card – some cards even charge for customer service.
Another surprise to some is that you may have to pay to put money on your card. While a credit card will accept payment and not charge you for that, a prepaid debit card will often have multiple loading options – some free and some not free.

Given the differences between prepaid debit cards, choosing the right prepaid debit card is important. The reviews of prepaid debit cards at are a great place for some research.


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January 4, 2008

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