Many cheque cashing outlets, stores and financial institutions now offer pre-paid MasterCard, Visa or American Express cards.
These are not credit cards, but can be used in the same way at places like stores or restaurants, online or at ABMs. They are called pre-paid because you pay up front to “load them” up before you use them.
Pre-paid cards can be reloadable (you can keep adding money to the card and use it) or non-reloadable (once you’ve used up the money, you can no longer use the card).
Non-reloadable cards may also be called gift cards and may have restrictions on how you can use them, for example, you may not be able to use one at an ABM.
Pre-paid cards can be very handy, especially if you need a credit card, but are not able or do not want to get one. For example, you can use them to rent a car, buy a plane ticket or purchase something online.
Because you aren’t borrowing money, the card issuer isn’t concerned about your credit history or income level – all you need is identification and enough cash to buy the card. By the same token, because you aren’t borrowing money, using a pre-paid card will not improve your credit score.
The key thing to be aware of is the fees. These vary from card to card and may include a fee when you first purchase the card, a fee every time you use the card, a monthly maintenance fee, a fee to reload the card, a fee to cancel the card and insufficient funds or overdraft fees, if you go over your card balance.
Watch out – these can add up quickly, and you could end up spending a lot of money for the convenience of using the card.
Another thing to check is whether your card has an expiry date. If you haven’t used the entire balance by the time the card expires, you may not be able to keep the remaining money.
Or, you may have to pay an “inactivity” fee for each month after the expiry date the card remains inactive with unused funds – you may also be charged a refund processing fee to retrieve any money remaining on the card.
The bottom line? Pre-paid cards can be a very convenient alternative to credit cards, but don’t get caught by the fees. Shop around to find the best card for your needs.
Information on fees, terms and conditions should be available where pre-paid cards are sold, on the card packaging or on the card issuer’s website. For more information, check the Financial Consumer Agency of Canada’s website: www.fcac.gc.ca.
Amy Taylor is Coordinator of the Kootenay Boundary Credit Clinic, a project of Castlegar & District Community Services. The Clinic provides free information and workshops about debt, credit and money management. Call 1-877-565-0013 or go to www.kbcredit.org for more information.