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Prepaid Cards vs Credit Cards: What’s the Difference?


Fact Checked

Credit cards and prepaid cards have several similarities but also important differences.

This guide covers everything you need to know, including the pros and cons, how they work, and more, to help you decide which is best for you.

What is a Prepaid Card?

A prepaid card is similar to a debit card in that you spend your own money. But rather than being linked directly to a bank account, it uses funds you load onto the card.

They typically run on the Visa or Mastercard networks. They provide you with a convenient and safe way to spend money without using cash and without needing a bank account.

What is a Credit Card?

A credit card allows you to borrow money to spend in stores and when you withdraw cash from an ATM.

You need to meet certain requirements to apply for one, and you are then given a credit limit.

You use a credit card in much the same way as a prepaid card. It will usually be on one of the Visa, Mastercard, or American Express networks.

When you use your credit card, you borrow the money and pay it back at the end of the month. If you don’t pay it all back, you will pay interest.

Related: How to pay off your credit card quickly?

How Do Prepaid Cards Work?

Prepaid cards are quite straightforward but vary in how they work.

After you have successfully applied for your prepaid card and received it, you must reload it with your money before you can use it. You could do this via a direct deposit or a smartphone app.

Once you have loaded the card, you can start using it. But there may be maximum limits for purchases or how much you can load. When you have spent the money, you must load it again with fresh funds to continue using it.

Some cards may come with purchase protection. They will also have an expiration date when you must apply for a new card, and many can make contactless payments. They may also come with rewards like cashback.

Some prepaid cards function as gift cards, which may or may not be reloadable.

How Do Credit Cards Work?

Credit cards are more complex than prepaid cards, but they are just as easy to use whether you are making a purchase or using an ATM.

During the month, you spend on your credit card purchasing groceries, gas, and other daily expenses. You do not have to load your card with funds, and you can spend up to your designated credit limit, which may be a few thousand pounds.

Each month, you will receive a statement. This will show you the amount you borrowed and how much you need to pay back. In addition, you will be given a payment date, and you can either pay back all the money by this date or make the minimum payment.

If you pay off your entire balance by the payment date, you will not pay any interest. This is because credit cards have a grace period of at least 21 days in Canada.

However, if you do not pay off the full balance, you will pay interest on the balance from the purchase date. You will then pay interest on any remaining balance going forward.

If you miss a payment, your credit score may be negatively impacted. In addition, you may also have to pay a late payment fee.

Credit cards often come with fees, including annual fees, foreign exchange fees, and more.

The annual fees are often higher for premium credit cards with better perks and rewards, but several are free.

Prepaid Cards vs Debit Cards

Prepaid cards are very similar to debit cards. With both cards, you spend your money directly rather than borrowing it like a credit card.

The main difference is that a debit card is linked to your chequing or savings account. So when you spend on the card, it takes the funds directly from your account.

With a prepaid card, however, you have to fund the account before making transactions, and you do not need to have a chequing account.

With a debit card, you may go overdrawn, which could lead to fees from your bank. With a prepaid card, you can not spend more than you have loaded onto the card.

Prepaid Card Advantages and Disadvantages


  • Easy to apply for.
  • No need to have a good credit score.
  • Lots of cards to choose from.
  • Many come with rewards like cashback.
  • Safer and more convenient than cash.
  • No need to have a bank account.
  • They won’t get you into debt.


  • You can only spend your own money and cannot borrow extra.
  • Fewer perks and rewards compared to credit cards.
  • There may be hidden fees to look out for.
  • You won’t earn interest on your money.
  • No way to improve your credit score by using one.

Pros and Cons of Credit Cards


  • Build your credit score by making your payments on time.
  • Access funds when you don’t have the money available.
  • Many credit cards include rewards and premium perks.
  • The grace period means you can borrow money without paying interest (as long as you pay off your balance in full).


  • You may get into debt if you don’t control your spending.
  • Credit card debt can be expensive due to high-interest rates.
  • Some credit cards are expensive to use, with high annual fees.
  • Missing payments can negatively impact your credit score.

How to Apply for a Prepaid Card

Applying for a prepaid card is a straightforward process. While credit cards often have stricter requirements, prepaid credit cards are relatively easy to apply for.

You can usually apply online on the prepaid card’s website by answering some basic questions, and you will then receive your card in the post.

Eligibility Requirements for a Prepaid Card

You will usually only need to meet a few basic requirements, like being a citizen or resident of Canada. You may need to be the age of majority in your province or territory, but this depends on the card issuer.

How to Apply for a Credit Card

Applying for a credit card is also a straightforward process. Start by researching the credit cards available, and when you find one you like, apply on the website. You may also be able to apply over the phone or in person at the bank’s local branch.

If you meet the eligibility criteria, your application can be approved almost immediately, or it may take a few days. You then receive your card at your address and activate it to start using it.

Eligibility Requirements for a Credit Card

Credit cards have stricter eligibility requirements than prepaid cards, but the exact requirements depend on the card.

Most will require a good credit score of 660 or above, but some may be more lenient, as with secured credit cards.

You will need to be the age of majority in your province or territory, which is either 18 or 19.

Credit cards will often have minimum income requirements you must meet. There will often be a minimum personal or household income requirement you must meet to apply.

There may also be other requirements, like not being declared bankrupt for the previous seven years.

Which is Better: Prepaid Cards or Credit Cards?

Both prepaid and credit cards have their benefits, so which is better depends on your situation.

A credit card may be the best option if you want to borrow money and build your credit score while accessing rewards and perks for spending.

If you just want to spend your money with the convenience and security of a card without spending cash, or you have a poor credit score, a prepaid card might be a better option.


Is a prepaid card a credit card?

No, a prepaid card uses funds that you load onto the card, while with a credit card, you borrow the money you spend.

Is a prepaid card a debit card?

While they are similar, prepaid cards are different from debit cards because debit cards are linked to bank accounts while prepaid cards are not.

Why are prepaid cards sometimes not accepted?

Prepaid cards can be used wherever their network (Visa, Mastercard, etc.) is accepted. If your prepaid card runs out of funds or suffers technical problems, it may not be accepted.

Do prepaid cards have fees?

Some prepaid cards may come with fees, but it depends on the card provider.

Related: Credit Cards vs Charge Cards.

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Gravatar for Enoch Omololu, MSc (Econ)
Enoch Omololu, MSc (Econ)

Enoch Omololu, personal finance expert, author, and founder of Savvy New Canadians, has written about money matters for over 10 years. Enoch has an MSc (Econ) degree in Finance and Investment Management from the University of Aberdeen Business School and has completed the Canadian Securities Course. His expertise has been highlighted in major publications like Forbes, Globe and Mail, Business Insider, CBC News, Toronto Star, Financial Post, CTV News, TD Direct Investing, Canadian Securities Exchange, and many others. Enoch is passionate about helping others win with their finances and recently created a practical investing course for beginners. You can read his full author bio.

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