The Difference Between Prepaid and Secured Credit Cards

Two credit card products that often get confused are secured and prepaid credit cards. Let’s take a closer look at the characteristics of each one and some of the things you should be aware of before choosing either of these products.

Secured Credit Card (Visa or MasterCard)

• The lender requires a deposit, often equal to the credit limit (i.e. $300 deposit = $300 limit)

• Requires a minimum monthly payment

• Can be used anywhere Visa or MasterCard is accepted

• Plan a trip – book a car rental or reserve a hotel room

• Make online purchases

• Access cash 24/7 at ATMs worldwide

• Allow you to establish or rebuild credit history

• Useful for students; consumers who have had credit problems in the past; or new Canadians

Things to be aware of

• Be cautious about a secured card offer from unknown institutions

• Beware of a secured card offer from issuers outside Canada. If you have problems, it may be challenging to resolve them if the company is outside of Canada.

• Avoid offers for secured credit cards that do not have a recognized brand name such as Visa or MasterCard

• May not be accepted by all retailers

Fees

• Annual fees can range from $0 to $59

• Annual fees apply for additional cards

• An average annual interest rate of 19%

• Cash advance/ATM fees

Prepaid Credit Cards(Visa or MasterCard)

• Requires no application or credit checks

• The card must be loaded with your own cash

• Accepted by most retailers where Visa or MasterCard is accepted

• Make online purchases

• Avoids getting into debt

Things to be aware of

• Does not help you build or re-establish your credit history

• Cannot withdraw funds from an ATM

• You may not be able to register your Prepaid Card for regular or recurring payments like your mobile phone or cable bill

• Some restaurants and other service providers will add up to 20% to your bill when they request authorization for purchase to cover any tip you might add. As a result, your Prepaid Card may get unexpectedly declined

• Airlines, car rental agencies or hotels may accept your Prepaid Card for payment but typically not for the initial reservation. Some do, and some don’t.

• A gas station may only accept your Prepaid Card inside the store but not at the pump

Fees

• The activation fees can be as high as 5% of the card’s value

• There are fees to re-load the card

• They have charges per transaction, averaging about 39-cents each.

• They have a monthly service fee after an initial six-month grace period.

• They contain other fees (which include service support, activation fee, etc.), which can easily make the card costly.

Choosing the type of credit card that is best for you will depend on your circumstances. Either way, we encourage you to do your research and read the cardholder agreement or terms and conditions before opening one of these products.

Powell Associates Ltd. is a Licensed Insolvency Trustee. We are experienced, hands-on insolvency practitioners who understand the personal impacts of major financial stress;

• You won’t be stuck in an assembly line process.

• You will expect and receive prompt responses and resolution of issues from our supportive and experienced team.

• We will review your debt solution options, including filing a consumer proposal or personal bankruptcy.

• We help Canadians with overwhelming debt get fresh financial starts.

Once you file a consumer proposal or personal bankruptcy, we deal directly with your creditors on your behalf. Your unsecured creditors are required to stop contacting you or continuing legal proceedings against you. Contact us for a free consultation.

We offer free consultations to review your financial situation and practical debt resolution options. Contact us to discuss your situation over the phone, a video chat, or in-person in Saint John, Moncton, Fredericton, Charlottetown, Dartmouth, or Miramichi.