Prepaid cards are a convenient way to carry money and keep track of your spending, because they let you control how much money you want to keep on the card.
When the money you've loaded onto the card is exhausted, there's no credit facility allowing you to borrow more money from your card provider - you only ever spend what you load on to the card, no more. As such they are a useful way to budget and to spend without the risk of accumulating debt. Prepaid cards also offer convenience in that they are accepted by the majority of businesses both nationally and globally, thanks to the fact that most are backed by Visa or Mastercard.
However, there are certain kinds of payments that you can't make on a prepaid card. These are worth knowing about whether you're a new prepaid user or if you already use the cards regularly.
What's the catch?
The main drawback that will affect the way you use a prepaid card is that most do not allow you to make pre-approved transactions. These kinds of transactions are those that require a 'deposit' to guarantee that funds will be available when the actual end value of the transaction is unknown.
For example, by asking to give your credit card details at a bar you can create a tab to be paid in full at the end of the evening. As the amount you will be charged is unknown at the beginning of the evening, your card details are kept as a guarantee that you'll have enough funds to complete the transaction later.
The issue occurs with prepaid cards because they don't give a solid guarantee that you will be able to complete the transaction regardless of how much it costs, due to their lack of credit facility. Because the amount you can spend on the card is finite (rather than, as with credit cards, set to a limit of several thousands) they are unable to work as a guarantee that your transaction can be completed regardless of how much you've spent.
How will this affect me?
This will affect you if you will need to use your prepaid card for any transaction that needs to be pre-approved. As well as using your card as a 'tab', this could include petrol stations when your card is entered and authorised before you fill up your car, car rental firms when your card details are held as a deposit and you are billed upon returning the car, and hotel stays when your card is taken at the beginning of your stay, and you are billed later for any charges you might have incurred.
In fact, any purchase where a deposit, security or guarantee is needed before the full value of the transaction is charged to you may not accept prepaid cards as payment.
As such it is important to read the conditions of your prepaid card thoroughly so that you know when you can and can't use it. Not all prepaid cards come with these exclusions, or they may require you to contact the merchant concerned about the pre-approved transaction before you can make it.
However many do not allow you to make pre-approved payments at all, which is why it's worth finding out before you find yourself without funds when you need them.