Secured Credit Card vs Prepaid Card- Which is Better?

Secured credit cards and prepaid cards have different features and benefits. A secured credit card requires collateral to open an account and helps you build credit. A prepaid credit card is for those who want a convenient way to manage their expenses without impacting their credit score. Before comparing secured credit cards vs prepaid cards, let’s understand what these cards are:

What is a Secured Credit Card?

For a secured credit card, the cardholder must back it with a cash deposit. This deposit acts as collateral on the account, providing the credit card issuer security in case you fail to make payments. The amount for the security deposit usually equals the credit card limit you want on the card. Credit card issuers have designed secured credit cards to be accessible for those with limited borrowing capacity or poor credit ratings. This allows you to build and improve your credit history over time.

What is a Prepaid Card?

Prepaid cards are a type of payment card that is preloaded with cash and linked to your bank account. They are convenient for budgeting and managing expenses. Traditionally, these do not impact your credit card history as there is no borrowing of funds. Prepaid cards allow the convenience and security of using a card with the risk of overspending.

Secured Credit Card vs Prepaid Card

The key differences between prepaid cards vs secured credit cards:

1. Credit History

Secured credit cards help build credit when used responsibly. Being consistent with your minimum monthly payments will positively impact your credit history. In contrast, prepaid cards do not affect your credit history as there is no borrowing of credit.

2. Initial Deposit

Secured credit cards require a security deposit as collateral. This is a downpayment to the issuers in case you cannot repay your balance. Whereas prepaid cards allow you the freedom to make purchases until you have used up your funds.

3. Interest Rates

While getting a secured credit card, knowing the interest rates in case of delayed payments is important. On the other hand, prepaid cards offer the flexibility of making purchases without worrying about interest rates.

When it comes to secured credit cards, look out for annual, interest, or even late fees. Depending on the prepaid card you choose, there are activation fees, monthly maintenance fees, overdraft fees, and ATM withdrawal fees.

Secured Credit Card vs Prepaid Card: Which is Better for You?

When to Consider a Secured Credit Card?

If you aim to build credit, a secured credit card is a clear choice between the two. Making timely payments will keep your credit utilisation ratio low, positively impacting your credit history. Explore features on the One Credit Card app that allow you to earn credit for timely payments.

When to Consider Prepaid Card?

A prepaid card is the best choice if you simply want to allocate a set amount of funds to a budget. Although you won’t risk going into debt or incurring interest charges, it is better to be mindful of the fees applicable to the card.

ALSO READ: Secured Credit Cards vs Unsecured Credit Cards: Key Differences

Depending on your financial needs, secured credit cards or prepaid cards might be the right fit for you. For instance, if you want to improve your credit score, a secured credit card might be a better choice, but if you want to stick to your budget and avoid borrowing money, prepaid cards might be the right choice. Secured credit cards and prepaid cards are both used for different purposes. Consider the differences and benefits between both the cards and understand what works best for you.