Prepaid Definition

A prepaid account is one that has been paid before charges have accrued. For example, you might be planning a vacation that will entail a large amount of driving. Knowing that your gasoline card will be used quite a lot, you send in an extra $250 payment the month before your vacation. Your account has been, at least partially, prepaid.

Many businesses use prepaid accounts to free customers from term contracts-for example, prepaid cellular telephones offer customers the use of a cellular telephone without the need to sign a long-term contract. In many cases, prepaid accounts expire after a certain term and unused benefits-for example, prepaid cellular telephone minutes-are simply lost.