Difference Between Secured Credit Card and Prepaid Card
What is the key difference between a secured credit card and a prepaid card?
Which of the following statements accurately describes the main contrast between these two types of cards?
A. Prepaid cards are ATM cards and are not credit per se.
B. Prepaid cards are a form of electronic cash and are not credit per se.
C. Prepaid cards are a form of electronic cash and are accepted in more places than credit cards.
D. Prepaid cards are a form of electronic cash and are backed with funds deposited into a special account.
Answer:
Prepaid cards are a form of electronic cash backed with funds deposited in advance and each purchase deducts from the pre-loaded balance. They are not credit cards as you use your own money, not borrowing from a credit company. They also do not affect your credit history. Option B
Explanation:
A secured credit card and a prepaid card both represent forms of moving money for purchases, yet they function differently. A secured credit card is an actual credit product where a bank extends a line of credit to the cardholder, which is generally secured by a deposit. Alternatively, prepaid cards, as stated, are a form of electronic cash and not credit per se. Funds are loaded onto these cards in advance, and as purchases are made, the expenses are deducted from the pre-loaded balance.
Unlike a secured credit card, when operating a prepaid card, you are spending your own money and not borrowing from a credit company. Also, unlike credit cards, they do not have any impact on your credit history. Overall, prepaid cards can offer easier access to your own funds and provide an effective method to control spending.