Prepaid Debit card and Credit Card, What's the Difference?

Difference between a Prepaid Debit Card and a Credit Card

A prepaid debit card and a credit card are virtually the same in appearance. In fact, they are used in much the same way; you find a product or service you want and give the merchant or service provider your card for payment.

While there are some similarities, there are some important differences. First, let’s talk about some of the similarities of prepaid debit cards and credit cards. The most obvious is the fact that they are basically identical in appearance.

Another way that a prepaid debit card and credit card resemble one another is in the way that they are used. Simply swipe the card and get the products or services you want. You can also use either a prepaid debit card or credit card to pay bills or to shop online. So convenience is a big factor!

Both are good alternatives to carrying cash. If you open your wallet and pull out a prepaid debit card or a credit card, onlookers have no idea how much money you have available. Compare that to cash. If a potential thief sees a wad of cash they are more likely to be tempted. And of course, cash is completely un-traceable.

Lastly, a prepaid debit card and a credit card will be issued by the same major card networks. Visa, Master Card, Discover or American Express.

So those are some of the similarities between a prepaid debit card and a credit card. Now let’s talk about the differences.

First and foremost, the money comes from two very different sources. On a prepaid debit card the money that you are using is money that you have deposited in advance. With a credit card, when you make a purchase you are actually initiating a new loan.

Therefore the biggest difference between a prepaid debit card and a credit card is your tolerance for debt. It is impossible to go into debt with a prepaid debit card because you are using your own money. Conversely, by its very nature, credit cards only create debt.

Also, merchants have a preference between accepting a prepaid debit card and a credit card. Many consumers don’t realize that there is a fee paid by merchants every time a credit card is used. A debit card does not generate the same fees. That’s why so many merchants will ask if it is debit or credit up front.

Many of the credit card machines will ‘assume’ a debit card transaction first and prompt you for a pin number. They realize that consumers will often run a debit card as a credit card for convenience.

A very important difference between a prepaid debit card and a credit card is the safety of your funds. Always check your terms and conditions regarding fraudulent transactions. With a credit card you are pretty well protected from some other person using your card. With a prepaid debit card your funds may be less protected. In fact, you may lose your money all together. So be sure to check your prepaid debit card provider’s rules on this matter.

There is room in your wallet for both a prepaid debit card and a credit card and there are good reasons to have both. Just remember the differences and choose wisely.