Most people are aware of credit cards these days, but not everyone knows about what a prepaid credit card is. Individuals are often confused between these two and some people even consider credit cards and prepaid cards as the same thing. But, you must be aware of the fact that both are totally different. You borrow money from your card issuer/bank in the case of credit cards, but that is not in the case of a prepaid card. However, both can have their own advantages and drawbacks, but it is essential for you to know how one is different from the other. To understand what is a credit card, what is a prepaid card, and what is difference between Credit card and Prepaid card, go through the full detailed information given below:

Difference Between Credit Card And Prepaid Card

What are Credit Cards?

Credit cards are the cards that provide you with a credit limit that you can use to make purchases for which you can pay later. In short, you borrow money from your card issuer to make purchases and repay it to them every month. Every credit card comes with a pre-set credit limit (except a few), which is the maximum amount you can spend using it in a Billing cycle (equivalent to a month). However, it is not advisable to use 100% of your credit limit, but you should just use 30% or less in order to maintain a good credit score. The credit cards are issued to you on the basis of your credit score and if it is not good enough, it will be quite hard for you to get approved for a credit card. In such cases, you can start your credit journey with Secured credit cards or personal loans and build your credit before applying for an unsecured credit card.

Nowadays, almost everyone is aware of the advantages of a credit card and hence wants to have one. If you don’t know how a credit card can be very beneficial for you and your financial health, refer to the following points:

Benefits of a Credit Card:

  • Credit cards allow you to make big purchases that you would not have been able to make otherwise. You can make big transactions and then convert your credit card bill into EMIs and pay a small amount every month until your dues are clear.
  • When you make purchases using a credit card, you earn reward points/cash back almost every time, i.e, you save something on all your purchases. This is one of the most significant benefits of credit cards.
  • Credit cards make your transactions very easy and hassle-free as you don’t need to carry cash and then count the notes every time, but you can swipe your credit card and your transaction will be completed.
  • You can build your Credit history using a credit card, which can help you get bigger credit and loans, like home loans, mortgage loans, etc, in the future.

Check here: Top Credit Cards Available in India

What Are Prepaid Cards?

In the case of a prepaid card, you don’t borrow any money from anyone, but it is your own money. You first need to load money to your prepaid card and then spend it or gift it to someone. Every time you purchase something using your prepaid card, the money is deducted from the card’s balance until it gets empty. Prepaid cards can be of two types: Reloadable Prepaid cards and Non-reloadable credit cards. The reloadable cards can be reloaded every time the money gets exhausted but the non-reloadable cards can not be reloaded once the whole amount is used. Prepaid credit cards can also be used as a gift card as you can load them with a particular amount and then gift it to someone to spend wherever they want. Like credit cards, prepaid cards also have a limit and you can’t go over that. You can only utilize the amount that you have loaded in it and not more than that.

Benefits of a Prepaid Card:

Following is a list of some of the advantages of having a prepaid card:

  • Prepaid cards can help you a lot in sticking to your budget as you can only spend the amount that you have pre-loaded in it.
  • You can gift a prepaid card to someone and there are high chances that they will definitely like it as they can make purchases of their choice using it.
  • You don’t need any credit history/score to get approved for a prepaid credit card. You can simply load them and use them.
  • Like credit cards, prepaid cards are also very easy to use and you can make hassle-free transactions using them.

Check here: List of Best Prepaid Cards in India

Credit Card vs Prepaid Card

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Credit Cards Prepaid Cards
  • You borrow money from your card issuer when you use a credit card.
  • You can spend beyond your credit limit but will be charged an over-limit fee for that.
  • You need to repay the amount you spend.
  • You need a good credit score to get a credit card.
  • You can build your credit history using a credit card.
  • You don’t borrow money from anyone, but it is pre-loaded by you or by someone else.
  • You can’t spend beyond your credit limit using a prepaid card.
  • You don’t need to repay any amount that you spent as it is your own money.
  • You don’t need any credit history or bank account to get a prepaid card.
  • Prepaid cards do not play any role in determining your credit history.

Bottom Line

Credit cards and prepaid cards, both are advantageous in their own way. With a credit card, you make purchases first and pay later, and with a prepaid card, you pay first and make purchases later. On one hand, credit cards can help you a lot in emergency situations or make big purchases, and on the other hand, prepaid cards don’t allow you to overspend, which is a great thing. Having a credit card has become a necessity for almost everyone these days as they allow you to save more and more as you spend. And prepaid cards can be best used to gift someone. So, credit cards and prepaid cards are totally different things and you can have both when required. However, if you want to have more financial power and an opportunity to save, you should definitely go for a credit card.

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