These days, there are plenty of ways to spend money without carrying cash. Two popular options are prepaid cards and credit cards. Prepaid cards let you load money onto a card, whereas credit cards let you borrow money up to a particular credit limit. This article will explore the differences between prepaid and regular cards to help you choose the right card type for your situation.

How do prepaid cards work?

Prepaid cards let you load a card ahead of time with funds by paying for it. For example, you can spend $300 to load a prepaid card with $300. Then, you can make purchases with that card until the funds run out. This allows you to track your spending and avoid overspending easily. Plus, it’s fairly safe — you can only lose as much as is on the card if lost or stolen.

How do regular credit cards work?

Regular credit cards let you borrow as much as you need up to a credit limit, then repay at your leisure as long as you meet the minimum payment. Interest accumulates on unpaid balances, then capitalizes onto that balance, meaning it is added to the balance. U.S. law limits your liability, and sometimes eliminates it entirely, if lost or stolen.

How to decide between a prepaid card and credit card

Here’s how to choose between a prepaid and credit card:

1. Your credit score

Credit cards require a credit check in many cases, which dings your score temporarily. Additionally, your approval chances may be lower if you have less than perfect credit. But keep in mind that poor-credit cards may be available, and you can use the card to build credit.

Prepaid cards don’t require a credit check. All you have to do is pay for them. So, if you have a lower score or don’t want to do a credit check, this type of card might be the right option. Keep in mind that there are also loans available for borrowers with poor credit, like cash advances, if you want to consider alternative options.

2. Your spending habits

If you have good spending habits, consider a credit card. Credit cards offer limits in the thousands to tens of thousands, giving you a lot of spending power. You just have to be careful not to overspend.

If you’re still working on your spending habits, a prepaid card could be the better choice. You can’t spend more than you put on the card, preventing you from overspending.

3. How fast you need the card

The credit card approval process can take a bit longer because of the credit check and income and employment verification. Then, you must wait for the card to be sent to you. Prepaid cards don’t ask for any of these things. All you do is pay for the card and receive it. This speeds the process along and eliminates the chance of time-wasting denials.

The bottom line

Both prepaid cards and credit cards have pros and cons, suiting them for different types of people. Prepaid cards require no bank account or credit score — just the money to pay for it. At the same time, you only get as much as you pay for. This can make them suitable for people with poor credit who need to build good spending habits.

Credit cards let you borrow money instead of using your own. They require a credit check and offer a much higher limit. Poor-credit options are available, but these cards are generally a better choice for those with credit histories and good spending habits. Overall, make sure to evaluate your financial habits, credit score, and how quickly you need the card to choose the right option for you.

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