What exactly is a credit card and what do you use it for?
Just like a debit card, you can also use a credit card for payments, both online and in the store. The transactions you carry out are only debited from your current account at the end of the month.
This is thus already a big difference compared to a (regular) debit card because the amount is debited from the account immediately. What happens in the case of a credit card is that the credit card issuer keeps track of your transactions and then charges these to you at the end of the month.
So the amount is actually advanced by the credit card company. As soon as you receive the bill from the credit card company, you must pay it within the agreed term. If you do this, you have actually had an interest-free loan and if you do not do this, you pay an interest rate on this outstanding amount.
This is useful for internet payments and payments abroad.
When we talk about payments abroad such as on vacation or a business trip, many people can relate to this. The world card as we know it from our bank is not accepted worldwide in most cases. Consider gas stations, restaurants and ATMs, for instance.
A credit card would offer a solution. If you want to rent a car abroad, they almost always want your credit card details in case you have bad intentions (as a kind of deposit). They then reserve a deposit on your credit card until you return the car.
For internet payments, a credit card is also accepted in most cases and you are insured up to a certain amount in case something goes wrong during shipping. The largest credit card providers are: Visa¹, Mastercard² and American Express³
Credit card fraud? Credit cards are becoming safer as a payment method and nowadays they are even as safe as the regular debit card.
Many people think the risk is too high to carry or even apply for a credit card. For example, imagine losing your credit card. The finder or perhaps the person who stole it from you could possibly cause a lot of damage and make payments with your credit card.
However, the deductible with most credit cards is very low or even zero. As soon as you lose the card, you must immediately report the loss or theft. In this case, there is no gross negligence on your part and you are not liable for any fraud committed.
If fraud has already been committed, this amount is usually reimbursed by the credit card company. Each provider has 24/7 customer service and can be reached anywhere in the world. In this case your card will be blocked immediately and no more payments can be made with it.
A credit card can also never be used without a limit. You agree in advance with your credit card provider what amount you can have as credit. This can vary between a few 100 euros to thousands of euros, obviously also depending on your income.
Payment in installments is not standard
There are also credit card issuers that make it possible to repay the outstanding amount in installments. This is called revolving. This method of payment is not immediately standard in the United States. If a credit card issuer accepts this payment method, you pay an interest rate on the amount owed until you have paid off your debts.
If you only want to use a credit card to bridge a period for when you are short, then you might be better off choosing a Personal loan, also called a PL. In this situation, you agree with a lender how long you want to borrow something and how high the amount must be and the lender will have an appropriate interest rate for this. These types of loans can start from as low as € 1,000 and can amount to many thousands of euros.
The interest rate is fixed for personal loans, so you know exactly where you stand in advance. In most cases, you can simply repay free of charge, so you can pay off your loan earlier if that has been agreed in advance. A personal loan can be used for many purposes, for example for a renovation, a car, making your home more sustainable or just for when you need it.
Prepaid Credit Cards, how do these work?
A prepaid credit card is actually also a kind of debit card, just like the regular debit card. The difference between a debit card and a prepaid credit card is that in the latter case you simply get a credit card number and you can also use it to make credit card payments.
You must have a positive balance with a prepaid credit card, you can top it up yourself (this is done through the internet) and after this you can use your prepaid credit card without actually having credit because you must always have the amount to be spent as balance on your card. Since you cannot be overdrawn, a credit score is not relevant here because no credit is provided.
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Renting a car often fails with a prepaid credit card.
Advantages of a prepaid credit card
- You have the same payment convenience as with a regular credit card
- The costs are in most cases low (or even zero)
- This card is easy to apply for because there is no applicable income requirement and credit score
- You can only make payments if the balance is sufficient
When do you choose a prepaid credit card?
A prepaid credit card would be a solution in the following situations:
- If you are not eligible for a regular credit card due to an income requirement
- If you do not want to have credit with anyone and only want to be able to spend what you actually have
- If you want to save on the costs that a regular credit card entails