Prepaid Credit Cards Avoid Debt By Michael Challiner At Isnare.com Ezine Articles

More than 50 per cent of the UK population are so worried about becoming a victim of fraud that they won't shop online. The research shows that one in three people know someone who had been the victim of fraud.

But a prepaid card might just be the answer for these reluctant online shoppers. Prepaid cards look just like the usual debit or credit card and allow you to purchase goods and services as usual.

The main difference is that you can only spend up to the money that has been preloaded onto the card. Therefore you cannot run into debt as the card has no credit or overdraft facility and crucially, your bank details are not linked to the card.

Initially, prepaid cards were used by parents to manage their children's spending habits with Maestro and MasterCard dominating the market. But now a number of rivals have arrived, aimed at everyone from nervous online shoppers to overseas travellers and new mothers. Prepaid cards allow people like these to be part of the modern day "plastic culture" allowing them to take advantage of online shopping discounts.

For shoppers who are worried about spending on the internet, this type of card could help reduce the potential for fraudsters to steal your personal details. The risk with a credit card is that the fraudsters will be able to spend out the available credit on the card, but a prepaid card is in principle like a pay-as-you-go mobile phone. The only value that can be stolen, is the money you have already loaded into it.

So how do prepaid cards work? Money - typically up to a maximum of 5,000 pounds - can be loaded on to the card by cash at your bank or a Post Office, or Pay Point terminal or by bank transfer or even by another credit card. Then, when you're out shopping, whether online or on the high street, they work exactly the same way as a standard debit or credit card.

When you are buying, you simply enter your pin number and then the total sum will be deducted from your card and the transaction is completed. To shop online, you find what you want to buy and then click on to the site's "checkout" page before filling in your delivery and prepaid card details. So long as you have a sufficient cash balance on your card (and the website can check that by obtaining a payment authorisation), the purchase will be completed and your item will be despatched.

However, prepaid cards do incur charges - they aren't free. They cost anything from 4 pounds and 95 pence to 10 pounds upfront and some cards also charge you monthly fee, typically around 5 pounds. Others make a charge of about 3 per cent each time you use the card.

It is clear that you have to be very careful when you chose a prepaid card. There are several types of charge that can arise on these cards and they can quickly mount up. For example, you could be charged every time you withdraw cash or use it to buy something and some prepaid cards also have a standard monthly charge.

And what about, card protection? Do they offer you full protection? In this regard, it's worth remembering that prepaid cards do not offer the same legal protection as a credit card does when you are shopping. Under the provisions of the Consumer Credit Act, credit card companies are liable along with the shop, if the goods you buy turn out to be faulty, are not as described, or are not delivered. But there is a condition - the price of the goods must be over 100 pounds and under 30,000 pounds.

Then, if the shop goes bust before you receive the goods, you can claim the money back from the credit card provider through which you paid for the goods. However, you are not covered if you use a debit or prepaid card.

However, some prepaid cards offer special protection for shoppers. Those that are branded as Visa are covered by the Visa Consumer Protection Policy. So, it's as well to make ensure you double check before you load any money on to your card.

By the way, pre-paid cards are not covered by the Financial Services Compensation Scheme. So if the card provider goes bust, you'll lose the entire unspent balance showing on your card.

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