Prepaid Card or Credit Card - What Should You Opt for?

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Ever since the digitisation of baking systems, financial institutions in the UAE have revolutionised their products to accommodate the ever evolving customer needs. The banks provide debit, credit, and prepaid cards to make funds easily accessible to their customers. Each type of card delivers its own features and benefits and depending on the financial requirements, a customer can opt for a debit, credit, or a prepaid card. While credit card offers short term loan, a prepaid card prompts you to use your own money. Additionally, a prepaid card is not linked to your bank account, as it is in the case of a debit or credit card.

What is a Prepaid Card and How does it Work?

A prepaid credit card allows you to spend the amounts stored on the card. It works like a debit card and is sometimes also referred to as a prepaid debit card. These cards are not linked to your bank account, unlike a debit card and, you need to reload your card online or at an ATM, CCDM to continue using it once the funds are depleted. Your cards can also be reloaded at participating merchants and stores. 

The bank issue prepaid cards along with the branding of major payment channels such as Visa, Mastercard, American Express and more. These cards have very lenient criteria and do not affect your credit score or history. 

Prepaid cards make it convenient for you to shop without carrying wads of cash and enjoy the security of digital payment. However, the card issuer may charge you a monthly fee, reloading and card set up charges before you can use it. 

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Benefits of Prepaid Cards in UAE

Along with offering a secure payment method, the prepaid card comes with several advantages as mentioned below. 

  • Carrying cash everywhere is cumbersome and has chances of theft or loss. A prepaid card provides you with the safety to shop and pay wherever you wish. 
  • A wide network of shopping outlets and merchants accept prepaid cards in UAE. 
  • Since you can spend only the amount available on your prepaid card, it helps stop the habit of overspending and keeps a check on your expenses. 
  • To offer you a prepaid card in UAE, the banks and financial institutions don’t verify your credit score or history. 
  • Prepaid cards are enabled with chip and pin security, thus offering your complete digital safety. Your funds are safe even if you lose your card. Additionally, you can block your prepaid card anytime by intimating your card issuer. 
  • Since the prepaid cards are not linked to your bank account, you would lose a limited amount of money available on your card if you fall prey to card fraud. 
  • The best-prepaid cards in UAE also come with options of withdrawing cash from a network of ATMs and CCDMs. However, consider various charges before opting for an open-loop prepaid card. 

What is a Credit Card and How does it work? 

A credit card enables you to acquire quick loans from banks and financial institutions with a promise to repay within the prescribed time. If you cannot pay the borrowing at once, you can also convert them into monthly instalments along with an interest rate. With a credit card, you can shop online and offline, pay utility bills, earn rewards on expenses and more. Unlike a prepaid card, where you need to reload funds, a credit card offers you the money from the bank with almost no liabilities. For this reason, credit cards are one of the safest financial tools available in UAE. Most financial institutions offer a variety of credit cards in UAE suiting your needs. 

Along with secure shopping, credit cards offer a range of benefits including, travel, dining, lifestyle and entertainment privileges. However, the eligibility criteria for a credit card may be constrained based on an individual’s salary and other requirements, making it tougher to acquire in comparison to a prepaid credit card. 

Benefits of Credit Cards in UAE

Being one of the most preferred financial tools, credit cards in  UAE come with multiple benefits. As a credit cardholder, you can enjoy the following advantages. 

  • Depending on the type of expenses, you can choose a credit card that rewards your spending in the form of points or cash back. The cards with loyalty benefits are also known as reward point credit cards. 
  • Along with cashback and rewards, you get attractive discounts and offers on various brands and outlets across UAE.
  • As a credit card owner, you use the bank’s fund for making payments. Unless you default on your payments, you have zero liabilities on the funds, including credit card fraud. 
  •  With chip and pin and chip and sign security features, credit cards are one the most secure funds accessing tools. 
  • Almost all outlets, brands and merchants accept credit card payments in UAE.
  • Along with payments, you can withdraw cash through ATMs, CCDMs, pay utility bills, shop online/offline and much more. However, the bank charges a heft withdrawal fee for credit cards and should only be used during urgency. 
  • With your credit card, you also get a full suite of online accounts to manage your card, limit your expenses, freeze and unfreeze your card in case of loss, theft and fraud. 

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Key Differences Between a Prepaid Card and Credit Card

Following are the key differences between a credit card and a prepaid card in UAE. 

Credit Card

Prepaid Card

  • With a credit card, you use the bank or the card issuer’s fund while shopping. 
  • Credit cards come with an upper spending limit known as a credit limit. After every card spending, the credit limit decreases and is restored when you make repayments. 
  • Since the bank checks your prior credit performance, you need to maintain a healthy credit score before applying for a credit card.
  • Most credit cards in UAE offer loyalty rewards and discounts at shopping outlets.  
  • With a prepaid card, you use your own funds while shopping. 
  • Prepaid cards come with an upper depositing limit known as your prepaid card limit. You can reload an amount equal to your card before spending it.
  • You don’t need a credit score verification while applying for a prepaid card in UAE. 
  • Prepaid credit cards do not provide loyalty benefits for your card expenses, while you might receive some discounts. 

 

What Should You Opt For: Credit Card or Prepaid Card?

Choosing the right type of card is crucial in planning and managing your expenses. You need to consider several factors while selecting between a credit card and a prepaid card. If you are an aggressive shopper, a credit card may land you into debt and large repayment amounts. On the other hand, a prepaid card may not offer adequate benefits while including numerous charges. You need to take the following factors into account when choosing a credit or prepaid card.

  • A credit card helps you build a credit score, eventually helping you to acquire loans in future based on your credit history. A prepaid card is not related to credit score and does not build or improve your creditworthiness.
  • As a credit cardholder, you acquire short term loans and also have an interest-free repayment period. If you pay your credit card bills in full within the due date, you don’t pay any interest or charge. While in the case of a prepaid card, you need to reload it with funds before using it. 
  • A bank or a financial institution issues a credit card and, your bank account is usually linked with the card. It helps you manage your account online. A prepaid card can be issued by financial or non-financial institutions. Additionally, the non-banking organisations may have their own terms and conditions for prepaid card uses. 
  • With a credit card, you get loyalty benefits such as reward points and cashback on each card expense. You can redeem these points avail of attractive discounts and offers across numerous shopping outlets in UAE. 
  • If you default on your credit card payments, you may end up paying a hefty penalty and high-interest rates. Additionally, repayment interest rates for credit cards are usually high. For certain credit cards, the APR (Annual Percentage Rate) can go as high as 40% per annum.
  • A prepaid card helps limit your expenses by letting you plan your spending beforehand. And, if you wish to avoid debts and monthly repayments, prepaid cards are a better option. 
  • However, before selecting a credit or prepaid card, you should go through the terms and conditions and various charges that you need to pay for using the services. 

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Who Should Choose a Prepaid Card?

Prepaid cards offer safe payment options along with keeping expenses within limits. It is a feasible choice for individuals with low credit scores, who cannot opt for a credit card. Frequent shoppers should also rely on prepaid cards since they might end up spending more with a credit card. Since prepaid cards don’t link to any bank account, low salaried individuals can also acquire a prepaid card and enjoy digital payments with safety and security. 

Difference Between a Prepaid Card, a Debit Card and a Credit Card

Conclusion 

Prepaid cards and credit cards offer different kinds of features and benefits. Depending on spending habits and card use, you should select a card. To have a risk and debt-free financial experience, you should acquire a prepaid card. If you have a good command over your spending habits, a credit card can prove to be beneficial. Considering the factors mentioned in the article, you can choose between a prepaid or a credit card that suits your needs.