Pay As You Go ñ Pay As You ÖGone!

With petrol prices heading skywards the cost of motoring has, for many, spiralled well out of control. So it’s something of a surprise that the pay-you-drive car insurance option from Norwich Union has been scrapped because of a lack of interest.

By charging motorists according to the number of miles driven, where, and when, Norwich Union claimed the policy could save drivers up to 30%. Unfortunately the scheme relied on technologies that car makers haven’t fully embraced, and that, combined with drivers’ reluctance to be monitored on their every journey, means it’s been a short-lived venture.

However, despite proving something of a flop in the car insurance market, pay-you-go is proving an increasingly popular payment option and is no longer limited to your mobile phone.

It may sound odd but some credit cards now offer a pre-paid or pay-you-go option. MoneyExpert.com gives a run-down of the market.

What’s the difference?

In some respects all credit cards are pay-you-go as you’ll be sent a bill every month for what you’ve spent using the card. If you’re able to clear the balance every month then there’s really very little between a traditional credit card and the new pre-paid alternatives.

The key difference is that with a pre-paid or pay-you-go credit card you’ll be making the payment before spending the money, so will only be able to use the card up to the amount that you’ve paid in.

For those that struggle to keep on top of their credit card payments this method has obvious benefits. You won’t need to worry about late payments charges and won’t be racking up huge amounts of interest on debts you can’t clear as those debts simply won’t exist.

Why not use cash?

Making one payment just so that you can make another may sound like a drawn out way of doing things but using a card has a number of benefits over cash. Chief among these is the security it offers over carrying around bundles of hard currency. The cards may also prove useful when travelling abroad, bypassing the need for foreign exchange.

With a huge number of transactions now carried out online a credit card of some description may be a very necessary tool and while traditional credit cards will require you to have a bank account a pre-paid card won’t.

Where to look

Though there are an increasing number of pay-you-go credit cards available the market is still fairly limited, with a number of major credit card providers still only offering traditional options.
However there are still a good few to choose from and as with any financial product the best card for you will depend on what you want to use it for. If it’s for use when travelling abroad then the Sun Tuxedo Mastercard could be a good bet with a 0% foreign exchange cost. If you’re after a card to use at ATMs in the UK then the B&F pre-paid card from the Newcastle Building Society would be a better option with no withdrawal fee.

Other factors to consider are the potential purchase fees and the minimum top ups you’ll be required to make. The ICE Travellers Sterling Cashcard may look tempting with no purchase fee (most cards between £5 and £10), but you will have to top it up by at least £100.

You also need to watch out for monthly and annual renewal fees. These can be as high as £5 a month in some cases. The Virgin Pre-paid Master card has no annual renewal fee or monthly charge.

Click here to compare pay-you-go credit cards

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