What are the disadvantages of prepaid cards?

Prepaid cards offer a flexible alternative to traditional accounts, but are they right for everybody?

In this article, we’ll take a look at the disadvantages of prepaid cards to give you further insight into this question. We’ll also look at one of the best prepaid cards for overcoming common limitations (yes, it’s us!). 

Recap: What are prepaid cards?

Prepaid cards work like debit cards, but they’re not linked to a traditional bank account. Instead, you load them with money before using them and spend only what’s in your account. In the case of Pockit and other solutions, you can also manage your finances from an alternative banking app. 

Because you don’t need to have a credit score or credit check to get a prepaid card, they’re a much more accessible solution ideal for people with low credit, poor credit, or those who are new to the UK. 

How do prepaid cards work?

Prepaid cards work by letting you load a specific amount of money onto the card to then be spent as you please. You can top up via bank transfer, salary payment, debit card, or cash loads at PayPoint stores. Then you can spend money in person or online, take cash out and set up bills and direct debits.

The disadvantages of a prepaid card

While prepaid cards offer plenty of benefits, some do have drawbacks you need to keep in mind. Here are some disadvantages of using a prepaid card and why you don’t need to worry when you use Pockit.

Limited acceptance

Some prepaid cards might not be accepted everywhere you want to use them. As an example, some hotels or car rental companies might ask for a credit or debit card instead. 

However, if you go for a prepaid card like Pockit that offers a Mastercard®, you’ll avoid this problem.

No credit building

Prepaid cards help you manage overspending and ensure you don’t damage your credit rating by mismanaging finances or credit. This is a feature many people enjoy but it also means you generally can’t improve your credit rating either. 

Fortunately, solutions like Pockit have options for credit building, so you can still manage your money while consistently improving your credit score in the background.

Limited features and benefits

Compared to a regular bank account, some prepaid cards can offer fewer perks and benefits. For example, they might not provide reward programmes or savings features. 

Cards like Pockit bridge this gap by offering rewards like cashback at major high street retailers and supermarkets as well as advances on your salary or benefits payment. There’s also a savings feature on the way soon!

Restrictions on international use

Some prepaid cards have restrictions on what country you can spend them in. That means there can be blocks on foreign purchases or fees when spending abroad. If you travel often make sure the prepaid card you’re looking at offers reasonable rates and flexibility. 

Reloading difficulties

Another potential drawback can be around how you actually top up your prepaid card. While some providers, like Pockit, allow for easy reloading through online transfers, salary or benefits deposits, and in-store PayPoint locations, with others there might be fewer options. Some providers also charge high fees for loading funds, so be sure to look closely at how you’ll top up before moving forward.

Advantages of prepaid cards

Prepaid cards offer some fantastic benefits over traditional basic accounts, especially for getting rewards, managing your money, and limiting overspending. These include:

• No overdraft fees. Since you can only spend what you’ve loaded onto the card, there’s no risk of surprise overdraft fees. This makes prepaid cards a great option to avoid debt.
• Budget control. By limiting your spending to just the funds you have available, prepaid cards help you stick to a budget and avoid overspending.
• Security. Unlike carrying large amounts of cash, prepaid cards offer a secure way to spend on the go. If you lose one or it's stolen, you can also easily block it from a mobile app straight away.

Discover Pockit

While there are pros and cons of prepaid cards, industry-leading options like Pockit are a great option if you’re looking to control your finances without the hurdles of traditional bank accounts.

Learn more here.