There's no denying that paying with plastic is convenient and can offer consumer protection as well, but if you don't want a credit card or can't get one, what are the alternatives?
We know credit cards can be beneficial, but they're not for everyone. You'd usually need a good credit score to be offered a credit card with a decent interest rate. Others may prefer to resist the temptation that comes with a credit card and avoid the possibility of getting into debt and paying interest or incurring fees.
1. Debit cards
If you've got a bank or building society account, you've probably got a debit card as well. With a debit card, you can only spend what's in your account unless you have an arranged overdraft. If your card lets you go overdrawn without an arranged overdraft, you could incur hefty charges.
With a debit card, you don't get the same protection as a credit card. However, you should still have access to the Chargeback scheme (which is also available to credit cardholders). The Chargeback scheme is when your card provider raises a dispute with someone you paid to help you get your money back. You could use this scheme if you paid for goods (or services) with your card and never received them, or if you received them but they were faulty. You can also use it in cases of fraudulent use of your card. You’d need to contact the supplier first to see if they'll rectify the situation. If they won't, then you can request a Chargeback. The exact rules for Chargeback vary slightly between card providers, so speak to your bank to find out if your claim is eligible. There's a time limit to put in your claim (usually 120 days), and some providers will have a minimum claim amount such as £10.
Read more about getting your money back if you’ve been scammed online.
These types of banks only do a soft search when you open a current account, so you wouldn’t need to worry about your credit score. For both Monzo and Starling, they’ll only do a hard search if you want an overdraft. Before you can open your account, you’ll have to provide some ID and upload a picture or video of yourself as well.
2. Prepaid cards
You can use prepaid cards like Revolut in the same way you'd use a credit or debit card. The difference is that you need to load money onto it first. Once you've spent this money, you won't be able to use the card again until you top up.
Prepaid cards are an excellent tool for budgeting, and you can manage them from an app on your phone where you can set yourself a credit limit. You can also initiate chargebacks from them the same way you would with a debit card.
These types of cards are handy for taking abroad, as they usually allow you to spend money in local currencies (subject to a conversion rate) without any transfer fees. Another advantage of prepaid cards is that they won’t affect your credit history. Since they’re not lending you money, they don’t need to do a credit check on you.
Some of them have monthly fees, and there will be fees for currency conversion, so check the terms and conditions carefully.
Many prepaid cards will give you a bank account number and sort code, meaning you're able to set up regular payments from them - but remember to keep them loaded with enough money to cover the bill/s.
3. Online Wallets
Online wallets such as Paypal or Skrill offer you an alternative way of making payments. Paypal was initially associated with eBay as a popular way of paying for goods bought on the auction site. But it's become much more mainstream, and Paypal has been accepted by many online retailers such as B&Q, John Lewis, and Boots. If you've got a Paypal business account, you can apply for a debit card that can use in stores, but Skrill offer cards to their account customers too.
Sites like Paypal usually offer some level of consumer protection to help in the event of a dispute, but it’s best to check what’s in place before you start spending.
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