Prepaid Card Vs. Debit Card

Prepaid cards and debit cards have some important similarities and differences. You can get these cards even if you have a bad credit history. You must have a bank account to have a debit card because it is linked directly to the account. A prepaid card simply requires money to purchase or reload the card. They don't affect your credit score, but both give you a convenient way to buy things without having cash on hand.

Debit and prepaid cards can have a Visa or MasterCard logo. (Image: Rayes/Photodisc/Getty Images)

Types

Prepaid cards and debit cards come with a Visa or MasterCard logo, Creditcards.com says. Prepaid cards can also be linked to a specific brand for stores, gas stations, restaurants or other businesses.

Function

Prepaid cards and debit cards have a similar function. They both let you spend money directly instead of borrowing funds like you do with a credit card. Cards that are branded as Visa or MasterCard can be used to pay for purchases at stores, online retailers and just about any other merchant that accepts those credit cards. Prepaid cards that are linked to a specific retailer, restaurant or other business can only be spent at that business or possibly its affiliates.

Funding

Prepaid cards are funded by adding money to the card, Youngmoney.com says. You cannot use a credit card to recharge a Visa or MasterCard branded prepaid card, but you can add funds with cash or a check. But you can buy certain types of prepaid merchant cards and gift cards with your credit card. For example, most restaurants and retailers will let you pay for prepaid gift cards with a credit card. Debit cards are funded by the bank account to which they are attached.

Cost

Debit cards are usually free, although some banks impose service fees. In most cases you will only have to pay if you overdraw your bank account and don't have overdraft protection. Prepaid cards branded as Visa or MasterCard usually have a monthly fee to keep the card active. You must have enough money loaded on the card each month to cover the fee.

Limitations

Prepaid credit cards and debit cards both have limitations. A pre-paid card is limited to the amount of funds you previously loaded onto the card. Purchases will be declined once that limit is reached. Creditcards.com warns that prepaid cards linked to a specific merchant may have an expiration date. You will lose the money if it is not spent before it expires. Most of the time, a debit card is limited to the amount of money you have in the linked bank account. Some banks offer overdraft protection, so you may be able to tap into that coverage if you spend more than you have in your account. This may incur interest and fees.

Reuse

Debit cards can be used for as long as you maintain your bank account. They usually have an expiration date, but your bank will issue a new card when the old one expires. Most prepaid cards can be reloaded after you spend the initial balance. You can keep reusing them as long as you keep adding more money.

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