Travel credit cards vs. prepaid travel cards - what’s the difference?

As exciting as it is to head on holidays, planning can be prone to stresses of its own. One of the many choices you’ll have to make is how to finance your trip. 

We’re here to help you sort out the differences between a travel credit card and a prepaid travel card - two very similarly named things with a whole lot of differences.

The main difference between the two is that a travel credit card uses borrowed money, paid off in monthly instalments. This could be a great option if you need some more flexibility with your money. Meanwhile, a prepaid travel card is preloaded with your money, converted into the required currency. As these are prepaid, these cards work best with a set budget.

Of course, there are pros and cons to each method of payment. To help you navigate which method of payment is the right one for you, we’ve taken a deeper dive into the details.

When you use a travel credit card, you are borrowing money. 

This takes away some of the stress of travel, as paying back your expenses is saved until a monthly statement comes through. It also means that not paying off your card will have an impact on your credit score and future borrowing power.

If you pay off your instalments in full, you won’t have to worry about the interest rate charged on top of your purchases. Otherwise, you could find yourself with quite the bill.

Travel credit cards are designed to be used overseas. This means that they might focus on a low foreign exchange margin, aiming to keep expenses low when converted back to Aussie dollars. You might also find a welcome focus on travel features, like travel insurance, airport lounge access, and connections with hotels and car rental companies.

• Pro: Flexibility. Since you haven’t got a set amount to spend beyond your own budget, a travel credit card places less limits on you as you spend overseas.

• Con: High interest rates. If you’re spending sensibly and can pay back your instalments on time and in full, you’ll be lucky enough to avoid interest. Otherwise, credit cards built for travel can have fairly high interest rates that go with their benefits.

• Pro: Travel rewards. A lot of the benefits of a travel credit card come in the form of rewards. When you’re travelling, you’ll see the return on having access to airport lounges, and you’ll be able to use the perks afforded by a good rewards system (flight and hotel upgrades, Frequent Flyer miles, and more).

• Con: High fees. Not every card is the same, so be on the lookout for the fees that come with travel credit cards. Make sure you look into the annual fees and late fees on a card, as often these can be high to keep international spending fees manageable.

• Pro: Low international fees. As opposed to using your normal credit card, international fees tend to be significantly lower on a travel credit card. This means lower charges for making an international transaction and widespread acceptance at overseas ATMs.

• Con: Changing exchange rates. With a travel credit card, you could be at the mercy of constantly changing exchange rates. While paying in local currency will save you on the dynamic currency conversion, you will still be paying whatever your bank’s currency conversion is. This can change, against your interests, regularly.

Unlike a travel credit card, a prepaid travel card is loaded up in advance and uses your money. This is also one potential way of using money from a holiday loan, as it puts all your holiday funds in one place.

Generally speaking, a prepaid travel card will allow you to load from a choice of international currencies. Many will allow you to carry multiple currencies at the same time, which can be useful if you are travelling to multiple countries.

• Pro: Ability to carry multiple currencies. Perfect for big travellers, make this card work from trip to trip by loading it with multiple currencies. Some cards will also let you transfer between one currency and another. Different cards do carry different currencies, so make sure you look up which ones are available to you - you don’t want to get caught out without that one currency that you need mid-trip.

• Con: Lack of flexibility. Since a prepaid travel card is loaded with your money, usually before the trip, you are more limited in what you can spend. This can be a good thing if you’re prone to impulse shopping, but can also be quite a big restriction - especially as some cards have costs for reloading.

• Pro: Lock in an exchange rate. Take advantage of a great exchange rate and lock it in! If you buy currency when the rate is good, you could potentially save big on the conversion. Use a foreign currency conversion calculator to check current rates.

• Con: Range of fees. You might already be expecting an annual fee or a fee for late payments, but prepaid travel cards can catch you out with fees in unexpected places. You may have to make room in your budget to accommodate for top-up fees (if you need to add extra cash to your card), inactivity fees (charged for months where you don’t use your card), or foreign ATM fees.

• Pro: Safe - for your budget and security. If you’re looking for safety, a prepaid travel card might be a good option. Not only are most prepaid travel cards pin protected, making them more difficult to steal access to, but they also keep you safe from easy overspending.

• Con: Less widely accepted. While you’re unlikely to find a place that knocks back your credit card, you might have difficulties with a smaller prepaid travel card. 

There is no easy answer to this question, as it will depend on your personal circumstances and what you are looking for in a card. 

It comes down to which pros and cons work best with your lifestyle, budget, and requirements while you’re on holidays. 

Travel is a deeply personal thing, so make sure you’re being thorough in your decision-making process - it could end up saving you money.

Believe it or not, you’re spoilt for choice when it comes to spending options for overseas. You might also want to look into:

• Holiday loans: Similarly to a travel credit card, a holiday loan involves borrowing money and making monthly repayments. A holiday loan could be a great option for budget-setting if you need some extra cash, as it gives you a set amount of money to use on travel. Unlike a credit card, there’s no avoiding interest by making your payments on time and in full - if you take out a travel loan, make sure you’re budgeting to pay it off with interest. 

• Travel debit cards: Travel debit cards operate similarly to prepaid travel cards but don’t need to be loaded up in advance. They use your own cash, linked to an Australian account which is geared towards overseas spending. Typically, these will offer low foreign exchange and foreign purchase fees (like the HSBC Everyday Account or the ING Orange Everyday Account).

• Cold, hard cash: It might feel a little bit old fashioned, but travelling with cash has perks of its own. It’s always handy to carry a little bit of local currency, as you might find yourself getting stuck in places where your card isn’t accepted or the machine doesn’t work. Or maybe you just really want to try that roadside snack! Cash offers a lot of the same benefits as a prepaid travel card, in that you’re largely at the mercy of the currency conversion rate - for better or for worse. 

Planning your trip overseas? Find our roundup of ways to pay overseas alongside our guide to Travel Insurance 101. To find our picks, find the Mozo Experts Choice Awards for Best of Travel Money.