Find the best cards

Compare all prepaid cards


The Prepaid Expert
100% proudly Canadian



How does prepaid credit cards work in Canada

Prepaid credit cards have gained popularity in Canada in recent years as a way to manage finances, budget, and avoid debt. They function similar to traditional credit cards, but with some key differences. In this essay, we will explore the features and benefits of prepaid credit cards in Canada, how they work, and who they are suitable for.

Credit cards became a necessity of our daily lives. Since almost everybody has one and most retailers can usually accept a payment with credit cards even more then cash these days. It’s truly exhausting to imagine life while not having a mastercard, visa or amex.

But here’s the issue, not everybody needs a mastercard or qualifies for one. area unit they out of luck since some merchants have gone cashless? Not specifically. several debit cards area unit currently joined to the Visa or Mastercard networks, thus you’ll create purchases in-store and on-line along with your card.

While debit card is a great solution, there are no benefits or rewards for using them in Canada. A better solution might be to use a canadian prepaid credit card. We’re not talking regarding those cards you get at the petrol station or gift cards, I’m talking regarding all the new fintech firms that supply paid cards. Here’s however paid credit cards work.

What exactly is a prepaid credit card?

As the name implies, prepaid credit cards are credit cards that you load with funds. Let’s say you get a prepaid credit card and load $500 on it, you would then be able to charge $500 to your card. Your limit is whatever you’ve loaded onto the card. You can not go into overdraft with prepaid credit cards. There is also no interest-free period since you’re paying in full each time.

Some prepaid credit cards have a fixed amount, while others allow you to reload them as often as you like. You would then be able to use the card wherever the network is accepted. E.g. a prepaid Mastercard could be used anywhere Mastercard is accepted.

Prepaid credit card fees in Canada

Here’s where things start to get a bit tricky. Every prepaid credit card had different fees. For example, let’s say you’re buying a prepaid Visa that you get from the gas station or drug store. That card may have an activation fee of $8.95. If you were to buy a $200 card, it would actually cost you $208.95.

There also are some paid credit cards that charge you AN activation fee, monthly fee, reload fees, bill payment fees and additional. Yes, that’s heaps of fees you wish to pay, therefore you wish to scan the fine print before you buy them. notwithstanding you don’t use the cardboard, you’ll find yourself paying monthly fees that may chafe your balance.

Fortunately, there are some no fee prepaid credit cards such as KOHO. With KOHO, you can get the basic service at no cost. You sign up via the app first, and then a physical card is mailed to you. You can then reload your card via e-Transfers (assuming you have access to free e-Transfers) and direct deposits for free.

A Prepaid credit card is different from a secured credit card

Some people confuse prepaid credit cards with secured credit cards. With secured cards, you deposit security funds to show that you’re creditworthy. That security deposit can not be used to pay off your balance.

The other major difference between secured credit cards and prepaid credit cards is that secured credit cards report your credit history to one of the credit bureaus, so you can improve your credit score. Prepaid credit cards do not report your credit history. If you relied just on a prepaid credit card, your credit score wouldn’t improve.

Why choose prepaid cards over traditional cards in Canada

Okay, so prepaid credit cards may have fees, you get limited benefits, and they don’t report to the credit bureaus. Why would anyone choose them over travel or cash back credit cards? The answer is simple when you think about it.

Not everyone wants to have or can get a traditional credit card. Some people realize that a credit card causes them to overspend, by switching to a prepaid card, they’ll only charge what they can afford. There are also some people who may not qualify for a regular credit card because they have a low credit score. Prepaid credit cards don’t require a credit check, so they can get one and make purchases where credit cards are accepted.

Benefits that come with prepaid credit cards

Generally speaking, only fintech companies prepaid credit cards come with any benefits that are worthwhile getting. For example, KOHO gives you 0.5% cash back on all purchases and you can also set up automated savings goals. That may not sound like a lot of, however considering ancient older paid cards can usually offer you nothing, earning money back with KOHO is a nice perk to have.

A prepaid credit card is a type of payment card that is pre-loaded with a set amount of money. It is not linked to a bank account or credit line, and the cardholder can only spend the amount of money that has been loaded onto the card. There are no interest charges or credit checks involved, as the cardholder is not borrowing money from a lender.

One of the main benefits of prepaid credit cards is that they can help individuals manage their finances and budget effectively. Since the cardholder can only spend the amount that has been loaded onto the card, it is less likely for them to overspend or get into debt. This can be particularly useful for individuals who have a tendency to overspend or have difficulty managing their finances.

Prepaid credit cards are also useful for individuals who do not have a traditional credit card or who do not qualify for one. This can include young adults who are just starting to build their credit history, or individuals with poor credit scores. Prepaid credit cards can help these individuals make purchases online or in person, and can also be used to build credit by making regular, on-time payments.

Another benefit of prepaid credit cards is that they offer a degree of security and protection against fraud. Since the cardholder is only using their own money, there is no risk of losing access to credit or being held responsible for fraudulent charges. In addition, many prepaid credit cards offer additional security features, such as PIN protection and online account management.

Prepaid credit cards are widely accepted in Canada, and can be used at any merchant that accepts credit cards. They can also be used to make online purchases or withdraw cash from ATMs. Some prepaid credit cards even offer rewards programs, such as cash back or points for every purchase made.

There are a few potential drawbacks to prepaid credit cards, however. One is that they may come with fees, such as activation fees, monthly maintenance fees, or ATM withdrawal fees. It is important for individuals to carefully review the fees associated with their prepaid credit card before using it, to ensure that it is cost-effective for them.

In addition, prepaid credit cards may not offer the same level of consumer protection as traditional credit cards. For example, if a purchase made with a prepaid credit card is defective or not as described, the cardholder may have limited options for resolving the issue.

Despite these potential drawbacks, prepaid credit cards can be a useful financial tool for individuals in Canada who want to manage their finances, budget effectively, or build credit. They offer a convenient and secure way to make purchases, and can be particularly beneficial for individuals who do not qualify for traditional credit cards or who want to avoid the risk of overspending or getting into debt.

Credit Card Canada

The Prepaid Expert ™
Best Cards OF 2024


The Prepaid Expert ™

Many or all of the prepaid credit cards featured here are from our partners. This affects the prepaid card we write about and where and how they appear on the page. However, this does not affect our rating. Our opinions about the prepaid credit cards are our own.

More From The Prepaid Expert Blog

Julie Leclerc is a Quebecer DJ and Finance geek. She write most of the articles for The Prepaid Expert, a usefull ressource for anyone who wants to choose the best prepaid credit card in canada. You can follow her on her facebook page