Last updated on October 1, 2018
It’s quite likely these three have already left you wondering how they’re different. And which one is the right one for you? If these questions keep coming around, read on.
Before diving into the differences, we should mention that any of these cards can have the logo of Mastercard, VISA or any other card scheme, and be issued by a bank or a non-banking financial institution, such as LeoPay.
Find out what the differences are between debit, credit, and prepaid cards below.
Difference between a prepaid card and credit card
It’s quite easy to show you the difference between a credit card and any other card. Essentially, a credit card is a short-term loan in the form of a card. When you pay with a credit card, you don’t spend from your own pocket but borrow money which you’ll repay later.
When you apply for a credit card, the bank will decide on the amount of money you are allowed to spend, and can be paid back in full by a certain date. Alternatively, you can choose to pay it off in instalments over a period of time, with interest added. Most credit cards have a grace period in which you can pay the borrowed amount of money in full, without any interest charged. The grace period varies depending on the credit card issuer and is found on the credit card agreement.
Aside from the interest, credit cards have various fees, such as service fees, and may turn out quite costly.
Difference between a debit card and prepaid card
Prepaid cards are also known as cash cards or everyday cards. In order to use a prepaid card, you need to deposit money onto it in advance. You can spend only the amount you’ve loaded and not a cent more. This makes prepaid cards an ideal choice for people with a bad credit history or anyone who tends to overspend when using a credit card or debit card with an overdraft facility.
Debit cards, on the other hand, are linked to a bank or e-money account. Unlike prepaid cards, they give you access to the deposited money. When you pay with the card, you actually spend from your account balance. The money in your bank account comes from a salary, dividends, rent or something else.
Some banks offer an overdraft programme with their debit cards, allowing customers to spend more than their current account balance. The overdraft comes with an interest rate and carries the risk of overspending.
When it comes to security, prepaid cards have fewer protections compared to debit cards – most have no protection from theft, loss, or unauthorised use.
Now it should be easier for you to pick the right type of card for you. If you want a free contactless debit card or two, linked to a free e-money account, you can sign up now.
The first two LeoPay VISA debit cards are free and have no monthly or annual service fees.