Pros & Cons of Prepaid Energy: How to Know if It’s Right for You

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Nobody wants to spend more on household bills than necessary. But you can’t exactly cut out the essentials, like electricity, altogether! If you’re exploring ways to save, you might have come across the concept of prepaid energy.

With this type of payment model, you put money into an account, and your electricity bill is paid from that account using those funds. When the balance is running low, you simply add more money to the account.

But does this payment model actually save you cash—and what happens if your account balance gets too low? Does your power simply get switched off? And how can you track the funds in your account and your power usage? There’s a lot to figure out.

Read on for the answers to these and other essential questions about prepaid energy. The below pros and cons can help you decide if it’s the right type of plan for your household’s needs.

What is prepaid energy?

Prepaid energy is a type of electricity plan in which homeowners pay for their power in advance. The customer sets up an account with the relevant energy provider and funds that account with their own money. Money is then deducted from the pre-funded account in line with the customer’s energy usage. As the balance in the prepaid account decreases, the customer can add more funds.

Prepaid vs. postpaid energy

For many households, prepaid energy can be a smart alternative to postpaid energy. In a postpaid plan, there isn’t any advance payment. The electric company simply calculates the household’s energy usage and then sends a bill to be paid at regular intervals, usually monthly.

In a prepaid energy plan, the customer sets up a prepaid account that they fund when and how they want. The money needed to pay for their electricity use is then deducted from this account—which they can refill regularly—according to their energy usage.

Why would a household opt for a prepaid plan over a postpaid plan? Some people find it easier to monitor their energy usage using prepaid plans—and even report saving money using prepaid plans. That said, there are drawbacks to prepaid plans versus postpaid plans. Learn more about the pros and cons below.

How does prepaid electricity work?

Prepaid energy plans have gained popularity thanks to the flexibility they offer. While they aren’t available in every state, those with deregulated energy markets—like Texas—offer them.

To enroll in a prepaid energy plan in Texas, you need a local address and a smart meter in your home (if you don’t have a smart meter, the power company can install one). Homes with a smart meter can often be connected to the power grid and activated remotely on the same day.

You then deposit money into your account before you start using electricity. The money to pay for your power use is then deducted from that account. You can fund the account easily via online payments or on the website. It’s also possible to fund the account via phone or in person at a MoneyGram location.

Your home’s smart meter is read daily, and you’ll receive a notification via email or text message that tells you how much power you’re using. Your daily report will show how many kilowatt-hours you’ve consumed, your remaining account balance, your savings for the day, and how many days of power (estimated) you have left, given your current balance.

Learn more about how prepaid energy works.

Pros of having prepaid energy

If you’re considering prepaid energy, you’re probably wondering what the benefits are. Here are some of the advantages.

No credit check or deposit

Unfortunately, bad credit can stand in the way of securing a traditional postpaid plan with retail electric providers. Here’s the good news: A prepaid plan doesn’t require a credit check or security deposit like a postpaid plan would. This is why prepaid energy plans are also called “no deposit electricity” or “no credit check electricity.”

This means that a prepaid service is accessible to you, even if you don’t have a great credit history. Your financial past doesn’t have to get in the way of you accessing this basic everyday need.

Quick and easy same-day connection

Since prepaid plans have a low barrier to entry, without the need for a security deposit or credit check, they’re fast and easy to set up. Same-day connection is often possible. Depending on your location, if you already have a smart meter installed in your home, you can connect and activate your plan remotely within four to six hours.

If you don’t yet have a smart meter, same-day activation likely won’t be possible. You’ll need to wait at least a day for a technician to come to your home and install the smart meter.

Transparency and real-time notifications

Prepaid electric services can be a great way to save money because they allow you to track daily electricity use easily. Most providers will email or text you a daily usage report, so you’re always in the know. This transparency makes it easy to monitor and control your electric usage and cut costs—more on that next.

Saves money

Real-time notifications about your daily energy use and account balance are a great way to promote energy- and money-saving behaviors. Best practices for saving energy include switching to more efficient light bulbs, optimizing your thermostat’s programming, and unplugging appliances when they aren’t in use.

Flexibility and control

When you simply get one big energy bill month-to-month, it’s hard to monitor your daily habits. However, prepaid electricity plans tell you exactly how much you’re using every day, so you can better control your energy usage. This gives you greater flexibility too, so you can adapt as you go along.

No long-term contracts

Prepaid plans also enhance flexibility because they don’t demand long-term contracts. You’re only paying for what you’re using. Plus, prepaid plans don’t require long-term contracts, since you pay for power upfront via your funded account. For people who aren’t ready to commit to a lengthy contract, this is ideal.

Suitable for new customers

The lack of long-term contracts—plus the fact that there’s no credit check or security deposit required—makes prepaid plans ideal for new customers. For example, say you’ve just moved to Houston and are scoping out Texas electricity providers. While you figure out which provider and plan are best for you, you can use a prepaid plan to get the power you need in the meantime.

No termination fees

Another major benefit of not getting locked into a long-term postpaid contract is that you don’t have to deal with termination fees. With prepaid plans, you don’t have to stress about the possible financial penalties of terminating your contract. You just pay as you go and end it when needed.

No monthly bill surprises

Nobody likes to get a bill that’s higher than expected, especially when it comes to something as essential as electricity use. When you prepay for your power, it’s easier to manage consumption and avoid overspending. There’s no concern about unpredictable overages and higher-than-anticipated monthly bills as a result.

Budget control

With a prepaid account, you can set a budget for your energy expenses by only funding your account to a set amount. Of course, you don’t want to let your account get too low. It’s like putting gas in your car. You don’t need a full tank, but you still want enough fuel in the tank—in this case, money in your account—to keep it running.

Security and privacy

Unfortunately, household bills like utilities can be used by criminals to steal others’ identities. Fraudsters may even go through a household’s trash to retrieve bills and bank statements with sensitive information—or, in the modern age, hack emails.

When you don’t have a monthly bill coming to you, this risk is mitigated. With the prepaid plan, you simply fund your energy account. As a result, there’s less likelihood that your personal financial information will be exposed if you aren’t paying your electric bills via a credit card or bank account.

Cons of having prepaid energy

Prepaid energy plans aren’t right for everyone. Beware of these drawbacks before signing up for a prepaid plan.

Higher energy rates

If you’re looking for a low rate for your energy, a postpaid plan may actually be the better option. Prepaid plans generally tend to have slightly higher base rates, which can result in greater costs in the big picture—especially if you’re not carefully monitoring and controlling your energy usage.

Frequent account management

Prepaid energy plans give you a great amount of power and control because you’re only paying for what you use on a day-by-day basis. You’ll receive daily notifications that tell you exactly how much electricity you’re using and how much money is left in your pre-funded account.

While some people love the personal agency this gives them, others don’t like the high level of management it requires. If you don’t like the idea of constantly checking your energy account and reloading it, a hands-off alternative—like a traditional postpaid plan, where you just get a bill at month’s end—may be best.

Variable rates

The costs of prepaid plans tend to be more unpredictable than those of postpaid plans. This is because prepaid energy is usually subject to a variable rate instead of a fixed rate. As a result, your energy usage costs may fluctuate more than with a postpaid plan. If you prefer predictability, then you may want to go postpaid.

Usage monitoring required

The variable energy rates may make prepaid plans seem unpredictable at first. However, you can actually tightly control what you’re paying, since you’re only funding your account to a certain amount—plus, you get daily info about energy usage and costs.

That’s good news, right? Well, if you’re not in the mood to constantly keep an eye on your usage and related costs, it may not be. It’s simply a matter of how much hands-on effort you want to put into your electricity consumption management.

No energy bill credit

A good credit score is helpful for all kinds of things in life, from getting a cell phone contract to securing a mortgage. One way that people can build credit is through their utilities. By getting a long-term postpaid contract with a provider and regularly paying your bill in full and on time, you can build credit.

If you opt for a prepaid plan, you won’t have this opportunity to build a good credit score. This can be a drawback if you’re trying to improve your score. That said, there are plenty of other ways to build credit too—this isn’t a must.

No grace periods

If you’re opting for a prepaid energy plan, you have to take care to always keep your account funded. If you don’t have money left in your account, your power will likely be shut off. There’s little to no grace period. Immediate payment is needed for continued service.

In contrast, postpaid plans tend to have more of a grace period. Once you get your bill, you’re given a deadline by which you need to pay the given amount. Your power won’t be shut off immediately if you don’t pay on the same day, for example.

How to know if it’s right for you

Still not sure if a prepaid plan versus a postpaid plan is right for you? There isn’t one right solution for everyone—it depends on your unique needs and situation. Ask yourself these questions to figure out if a prepaid power plan may be right for you:

• What’s my credit score? A low credit score can keep you from getting a traditional prepaid plan, making a postpaid plan the perfect alternative. You can view your credit score for free once every twelve months. Pro tip: Some people may also use a regular postpaid energy plan to help build their credit!
• Will I stay on top of my account management? With a prepaid plan, you need to keep an eye on the funds in your account. If you’re busy with everyday life, taking the time to reload your account may be a hassle you don’t want to deal with.
• Are monthly bills or usage-based payments better for me? Some consumers prefer to get a fixed monthly bill every month. Others like usage-based payments better. It’s just a matter of preference!
• Do I have plans to move any time soon? One major benefit of prepaid plans is their flexibility. You don’t need to get locked into any kind of long-term contract since you’re paying as you go. If you have plans to move, this is ideal.
• Is flexibility a consideration for me for other reasons? Even if you aren’t planning to move, you may appreciate the flexibility of a prepaid plan. For example, you may be shopping around for energy providers and trying to find the best one for you. While you figure that out, you don’t want to get tied to a lengthy contract, making prepaid a good choice.

Take control of your energy usage with Payless Power

If you’re looking for a prepaid energy provider in Texas, check out Payless Power. Our prepaid plans are fast and easy to set up and don’t require you to commit to a long-term contract. Plus, there’s no credit check or security deposit required.

Check the list of service areas, from Dallas to Houston and beyond, to see if you’re covered. Once you’re all set up, we’ll send you daily notifications via text or email about your energy usage, so you can start saving money on power right away.Visit our enrollment page to get started.

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