Prepaid credit cards are designed to offer the benefits of credit cards to those who aren't eligible for a traditional card. The cardholder doesn't go through a credit check and doesn't need a bank account to qualify. The holder simply loads up the card with a dollar sum and uses the "credit" to book event tickets, reserve a hotel room or make purchases, exactly as he would with a traditional card. If you hold a prepaid card, you may encounter a few restrictions, however, particularly when it comes to renting a car.
How Prepaid Cards Work
Pay-as-you-go cards, as their name implies, allow you to load them up with a cash amount, and use them to make purchases to the value of the preloaded limit. Since the money already belongs to you -- no money is loaned on a prepaid card -- there's no interest to pay, and no danger of you getting into debt. If you try to use the card for more than its available balance, the transaction is simply denied.
The Debit Card Analogy
In practical terms, a prepaid card works more like a debit than a credit card. With a debit card, you can draw funds to the balance of his bank account. With a prepaid card, the purchase limit is the preloaded amount. For some car rental agencies, this presents a problem. When you rent a car, the final price is not known until the rental contract is complete. For example, you may damage the car, incurring an extra charge that exceeds the funds loaded onto your prepaid card. The rental company has no guarantee that you can pay the total charge at the end of the contract.
As a general rule, car agencies require a major credit card at the time of rental -- if they're handing over a $25,000 car, they want something to back it up, in case you abscond. Some strictly adhere to the credit card policy, while others accept the presentation of a debit or prepaid card in certain situations. Policies vary per company and location, largely because rental agencies are franchise operations allowed to set their own rules. Typically, you can settle your bill with your prepaid card at the end of the contract.
Not having a traditional credit card is a sign that you're a credit risk, so rental agencies that do accept prepaid cards often take extra precautions. As a pay-as-you-go customer, you may undergo a credit check and be asked to pay a large up-front deposit. Some companies exclude young drivers and limit access to luxury cars.
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