The Difference Between Prepaid Cards, Purchasing Cards, and Credit Cards

Prepaid cards, payment cards, and credit cards can help you manage your business’s finances, but they work in very different ways. So, which one might be more suitable? It all depends on what you and your business need. We’d better start off by explaining what the difference is.

How do prepaid, purchasing, and credit cards work?

A prepaid card is a bit like giving someone a gift card. You can top it up as and when you need to, and spending is limited to the balance on the card.

Credit cards are a bit different because you’re basically borrowing money and then paying it back. The amount you can owe at any given point is usually restricted by a credit limit, and you’ll normally need to at least pay back a minimum amount each month (although you can repay the full balance in one go if you want to). Anything you don’t pay back is rolled over to the following month, but you’ll be charged interest on the balance you carry forward.

Purchasing cards are very similar to credit cards, but you’ll normally need to repay what you owe at the end of the month, rather than rolling it forward.

Credit cards at a glance

Prepaid cards at a glance

Purchasing cards at a glance

Spending restrictions and access to credit

Spending on prepaid cards is limited to the amount you make available on the card. That is, you can only spend what you ‘top up’. Credit cards can allow businesses to make use of revolving credit, borrowing funds when they need it, and paying it back over a longer period of time. There can be more flexibility with purchasing cards, allowing you to set restrictions on a cardholder level.

Security considerations

Prepaid and purchasing cards don’t have the full protection of section 75 like credit cards do. So, even though spending may be limited (and a prepaid card isn’t linked to a current account), it’s worth bearing in mind that recovering unauthorised spending will be far more difficult.

Fees, penalties, and interest

Prepaid cards don’t carry the same financial burden of additional charges, because you’re not accessing a line of credit, but there will usually be some sort of fee involved.

Using credits and purchasing cards can incur additional fees in several ways, such as an annual charge for using the card, late payment fees, and interest rates.

Getting something back

Prepaid cards do not offer any form of spending rewards, and it’s rare for purchasing cards. Credit cards often include spending incentives and benefits, such as cashback and redeemable points against travel and shopping.

How do I keep my different payment methods organised?

Keeping your transactions organised means you’re far more likely to reduce the risk of overspending, or running into problems with your cash flow.

Card-issuers will normally give you some sort of reporting function, such as statements and so on, and in most cases, you’ll be able to use bank feeds with a credit or purchasing card. This feels like a good moment to mention Pandle includes bank feeds.

Learn more about using Pandle to make business accounting easier. Create an account today and decide what to do with all the extra time you get back.