Best Prepaid Credit Card in Canada

A prepaid credit card is a payment card you first load with your own money to spend on goods and services.

3 Best Prepaid Credit Cards for Canadians

1. KOHO Prepaid Mastercard

Great prepaid card offering up to 5% cash back on all purchases
 

2. Wealthsimple Cash Card

Offers instant deposits up to $1,000 per day – exceptional prepaid card especially for those who are already using other Wealthsimple products.
 

3. BMO Prepaid Mastercard

Ultra low fee card ($6.95) with several beenfits such as extended warrant and purchase protection.
 

What is a Prepaid Credit Card?

At first glance, a prepaid credit card may look indistinguishable from a regular credit card.

However, despite its name, it’s technically not a credit card at all.

When you use a credit card, your card issuer loans you money through a revolving line of credit, which you can then use to complete a purchase.

You’re obligated to pay back this money at a future date.

Conversely, with a prepaid credit card, you provide the funds upfront to facilitate each purchase transaction.

There’s no borrowing of money involved.

With a credit card, you have access to a credit limit, which represents your available spending power or the maximum balance you can carry at any one time.

In contrast, with a prepaid credit card, your spending power is equal to the amount of money you’ve loaded onto the card.

As you conduct purchases using your card, your available balance dwindles.

Before using a prepaid credit card, you must first add funds to the card.

Typically, this step involves arranging a transfer from your chequing or savings account, easily accomplished through your card issuer’s online banking portal or at one of their branches.

You can also add funds to your card directly from your paycheque or reload the card with cash at a retail location.

Once you have sufficient funds in your prepaid card, you can use it for your everyday spending, like groceries and fuel.

When shopping offline, you can tap, insert, or swipe the card at the payment terminal to complete the transaction.

You’d select “credit” when asked to choose a payment option.

When shopping online, you’d select the appropriate card network when prompted to choose the card type (usually Visa or Mastercard).

You may need to input the three-digit security code on the back of your card as well.

Once your balance reaches zero, you’ll have to replenish your card with funds to continue using it. 

Card issuers impose restrictions on the maximum load limit, purchase limit, and maximum balance you can carry on your prepaid credit card.

For example, with CIBC’s Smart Prepaid Visa Card, you can load and spend up to $3,000 daily and maintain a maximum balance of $10,000.

Most prepaid credit cards charge little or no annual fees, making them cheaper than regular credit cards.

However, you’ll still have to contend with various fees, which vary depending on your brand.

These include activation fees, reload fees, transaction fees, over-limit fees, and ATM withdrawal fees.

As with a standard credit card, you can rest easy knowing that your prepaid card provides numerous security features to safeguard your personal financial information. 

For example, with a Visa-branded card, you benefit from zero liability protection on unauthorized purchases, state-of-the-art chip technology, active fraud monitoring, and an advanced authentication system called Verified by Visa (VbV). 

How to Get a Prepaid Credit Card

Prepaid credit cards are readily available in Canada.

You can acquire one by contacting your financial institution online or by phone. 

In addition to traditional banks, various firms in the fintech space like Mogo, Koho, and Stack offer prepaid credit cards.

Some retail locations also sell them.

To qualify for a prepaid credit card, you’ll have to fill out a basic application form.

Generally, the eligibility criteria you need to satisfy are:

• be a Canadian resident, and
• be the age of majority in the province or territory you reside.

Once you submit your application, the card issuer will send your prepaid credit card in the mail.

Once it arrives, you must activate it and sign the back before using it. 

Prepaid Credit Card vs Debit Card

Both prepaid credit cards and debit cards utilize your money to process purchases. 

The primary difference between the two is that a prepaid card isn’t linked to your bank account, while a debit card is. 

To use a prepaid card, you must first transfer money to it from your chequing or savings account.

This step isn’t necessary with a debit card since it draws funds directly from one of these accounts when you swipe or insert it at a point-of-sale terminal.

A prepaid credit card contains only cash you load onto it, and you’re subject to a maximum balance you can carry.

There’s no such constraint with a debit card since it serves only to facilitate transactions rather than store cash.

Also, prepaid credit cards don’t offer overdraft protection, which means you can’t exceed your spending limit.

Conversely, most bank accounts provide some level of overdraft protection.

Prepaid Credit Card vs Secured Credit Card

Your card issuer doesn’t extend credit to you when you use a prepaid card – the money you use is entirely your own.

In contrast, with a secured credit card, you actively borrow money against credit provided by your card issuer. 

You must place a security deposit with your card issuer before you’re authorized to use a secured credit card.

There’s no similar requirement with a prepaid card; you can use it immediately upon activation.

With a secured credit card, you’ll be subject to a strict repayment schedule and incur interest charges should you fail to make timely payments.

Conversely, there are no interest charges or payments to worry about with a prepaid credit card. 

Prepaid Credit Card vs Gift Card

Gifts cards are preloaded with a specific sum of money for you to spend at one retail brand or store, usually.

There are also Visa and Mastercard gift cards that allow you to spend the money anywhere.

In contrast, you can load a prepaid credit card with varying amounts of money and spend it almost anywhere.

Once you spend the last dollar available on a gift card, you can’t top up the card with new cash as you could with a prepaid credit card.

Gift cards typically have an expiry date, after which you lose the ability to spend the balance remaining on the account. 

Prepaid credit cards expire as well, but this only pertains to the card itself; the money on your account is still available indefinitely.

Your card provider will issue you a replacement card, enabling you to continue charging purchases.

Prepaid Credit Cards and Credit Scores

Suppose you’re keen on applying for a prepaid credit card but don’t have a great credit score. 

Luckily, card issuers don’t consider your credit standing relevant when evaluating your application.

A prepaid card doesn’t entail borrowing any money, so they automatically skip the hard credit inquiry.

Prepaid credit cards have no impact on your credit score, which may or may not be a good attribute depending on your goals.

If you’re looking to establish or repair your credit, for example, a regular credit card would be a more suitable financial tool for you to use.

Frequently Asked Questions