Sequel to the advancement of the banking sector into a more digital and cashless industry, different types of cards have been initiated. Each of which possesses a distinct feature and purpose of usage. The most common types of cards are prepaid cards, debit cards, and credit cards, people often confuse these cards for the other.
When it comes to prepaid, debit, and credit cards, it’s important to note that these cards are not the same thing. However, they’re issued by companies like Visa, MasterCard, American Express, or Discover, but these three types of cards are quite different. One common thing about the three is that they’re all used for making purchases.
This article has demonstrated the differences between prepaid cards, debit cards, credit cards and also how they’re used.
A prepaid card is a plastic card that can be loaded with funds at any retail store and these cards aren’t linked to a bank account. The user can spend up to the amount of money on the card and reload them, depending on the type of card. These prepaid cards often come as gifts or rewards but people without any bank account can request and purchase them. Using a prepaid card, you just load money on the card and then use it to make purchases. Companies like Walmart, Visa, and Amazon issue these cards and they can only be accepted as a medium of payment by businesses or stores linked to the card. There is no interest fee on this card, though there may be some fees depending on the type of card, such as initial setup fee, monthly maintenance.
A debit card is one of the most popular bank cards around. Debit cards are different from prepaid cards, this time around, it is connected to your bank account. When you swipe them, the money is debited to your bank account. Debit cards ensure quick transactions and give you the option to make purchases with their money in your account without the need for cash. Companies like Visa and MasterCard issue these cards through banks, to their customers. They can also be used in any store or business that accepts Visa card or MasterCard. There’s no interest rate charged for using this card but there are other fees that may come with card, such as maintenance fee, ATM fee etc
A credit card Is another type of card which is different from your bank account and gives you the benefit to make purchases by borrowing from a credit limit, which is dependent on your credit score and other factors.
It is important to know that you will be assigned a credit limit(the maximum amount you can spend from the card) when approved for a credit card. You can spend this amount regularly and pay back without interest, if and only if you pay back before the next billing period but if you default on the monthly regular payment, you will charged interest on the card balance and this could reduce your credit score.
For example, if you get a credit card with an N5,000 limit, this means you can spend up to N5,000 on the card. Though you can carry your remaining balance,(unpaid used money) over to the next month, you will be charged interest on the card balance until you pay it off. This is why it’s advised to buy only what you can afford to pay for within your billing period. Credit cards can help you build your credit score and demonstrate that you are a trustworthy borrower. Credit cards are issued by companies like Visa and MasterCard through banks, to their customers. These cards can be used to make transactions in any store that accepts Visa and MasterCard and it can attract extra charges like foreign transaction fee, late return payment, balance transfer etc.