What Is a Prepaid Sim Card and How It Works

If you are interested in understanding what is a prepaid SIM card, we need to get some basics out of the way first. It is a simple concept that may prove to be more cost-effective than a subscription. The first step is to understand the difference between the two.

#1. Prepaid versus subscription contracts

In a subscription contract, you agree to pay a fixed monthly invoice. The invoice represents payment for your access to resources such as SMS, voice calls, and data traffic or internet access for the previous month. Each subscription contract includes some sort of limitations. For example, a subscription package may offer just 20 GB of data traffic per month while a more expensive subscription can offer double that. You pay for the services after using them for a month and you are typically locked for 12 to 24 months. This means that the mobile carrier knows he will be collecting from you a given amount of money each month for the duration of the contract.

Prepaid SIM cards do not come with a contract. You pay upfront for what you will use. If you want to stop topping up/paying for credit for your SIM card, you can do so at any given time. It offers a greater degree of freedom and no obligations.

#2. How does it work

When you top up your prepaid card, you add a given amount of money as credit, assigned to your account. That credit can be used to purchase services. If you do not purchase any packages that include different types of services such as a given amount of data traffic allowance, voice calls, and SMS traffic allowance, you will be charged per MB of data traffic, minute of a voice call, an SMS text message. The prices for each of these can be higher than if you would have bought a package that includes allowances for them.

An example of how the above-described charge plan works would be as follows:

You top up your prepaid SIM with $5 and start browsing the internet without activating a prepaid package. That would cause you to be able to use 2 GB of data traffic. A prepaid package worth $5 may include 5 GB of traffic. If you activate the package you get more for the same amount of money. The same goes for voice calls and SMS traffic.

Moving forward, in understanding what is a prepaid SIM card, it is important to notice that these packages are also called options and they have an expiry date. If you activate an option, it may be active for 30, 60, or 120 days. After that time, even if you have not exhausted your voice calls, data traffic, or SMS traffic, the package will expire and you will need to top up your SIM and activate an option once more. Otherwise, you will no longer be able to browse the internet, make voice calls or send text messages.

Overall, you get fewer benefits with a prepaid SIM card in terms of allowances for services. The advantage is that you may not need tens of GB of data or thousands of unlimited voice calls. You end up saving money by paying a bit more but just for what you use and need.