Can I Buy a Prepaid Card With a Credit Card?

Buying a prepaid card with a credit card is generally not straightforward and often comes with significant limitations. Financial institutions and credit card issuers frequently restrict such transactions. This article explains these restrictions and outlines alternative methods for funding prepaid cards.

The Nature of the Transaction

Purchasing a prepaid card with a credit card is typically classified as a “cash advance.” A cash advance occurs when a credit card is used to obtain cash or a cash-equivalent product, like a prepaid card.

Financial institutions implement this policy for several reasons. This includes fraud prevention, aiming to prevent the immediate conversion of borrowed credit into untraceable cash. It also helps prevent money laundering by making it more difficult to use credit cards for illicit financial activities. This classification also ensures that specific fees associated with converting credit to cash are correctly applied. Most retailers and financial institutions either block these purchases or automatically process them as cash advances.

Associated Costs and Credit Implications

If a credit card transaction for a prepaid card is processed as a cash advance, it incurs specific financial consequences. A primary cost is the cash advance fee, typically a percentage of the amount advanced, often ranging from 3% to 5%, or a flat fee, such as $10, whichever is greater.

Cash advances also carry a higher Annual Percentage Rate (APR) compared to standard purchases. While purchase APRs might hover around 20%, cash advance APRs can range from 25% to 30% or even higher. Unlike regular purchases, interest on cash advances begins accruing immediately from the transaction date, leading to increased costs if not repaid quickly.

Cash advances do not directly contribute to improving a credit score. Frequently taking cash advances can be viewed negatively by lenders, potentially signaling financial instability. This type of transaction also increases one’s credit utilization ratio, which is the amount of credit used relative to the total available credit, and a higher utilization ratio can negatively impact credit scores.

Alternative Ways to Fund Prepaid Cards

Several common and accepted methods are available to fund a prepaid card without using a credit card. The most straightforward approach is using a debit card, which directly draws funds from a linked bank account. This method is widely accepted and avoids cash advance fees or interest charges.

Another practical option for reloadable prepaid cards is a bank account transfer, often facilitated through an Automated Clearing House (ACH) transfer. This allows for direct transfers from a checking or savings account, which can be set up as one-time or recurring payments. Physical cash can also be used to purchase a new prepaid card or to load funds onto an existing one at various retail locations. Many prepaid card providers allow cash loads at participating stores, sometimes for a small fee.

Additionally, many reloadable prepaid cards offer the convenience of direct deposit. This allows paychecks, government benefits, or other regular payments to be directly loaded onto the card. Some cards also support mobile check deposits or the purchase of “reload packs” from retailers to add specific amounts.