Prepayment vs. Credit meter

The type of meter you have can have a big impact on how much you pay for your energy. Depending on whether you have a prepayment or credit meter, you could be paying more without even knowing.

We've broken down what prepayment and standard credit meters are and how they differ, to help you make an informed decision on which is right for you.

What is a prepayment meter?

A prepayment meter is similar to a pay as you go SIM for a mobile phone – purchasing top-up for your meter once your credit runs out.

Your energy supplier will provide you with a card or key which you can take to one of the following locations to top-up:-

• Post Office
• Payzone
• PayPoint

If you are on prepayment with a standard energy meter, some suppliers may also offer top-up options using an online webform or app operated by that particular supplier.

If your credit drops below a certain threshold (usually 50p or less), and you can’t  immediately top up, you can claim £5 - £10 in emergency credit. With some suppliers, this credit will be added automatically when you run out, while others may need to generate the credit manually, in which case you’ll need to contact them to ask for it to be put on. It’s important to remember that if you decide to use emergency credit, it will need to be paid back when you next top up.

Topping up with a smart prepayment meter

Most suppliers now also offer smart prepayment meters. A smart prepayment meter allows you to top-up online, over the phone, or via an app, eliminating the need to visit a store to purchase credit.

If you have a traditional prepayment meter but want to switch to a smart prepayment meter, get in touch with your energy provider. They will arrange for this to be installed at a time and date that suits you, and you will not be charged for the installation.

What do I pay for with a prepayment meter?

With a prepayment meter, charges are made up of the following:

• Your usage
• Daily standing charge

While not direct elements of your prepayment charges, other costs associated with using a prepayment meter include any debt incurred from the use of emergency credit, as well as the ‘prepayment penalty’. The prepayment penalty is an in-built cost passed down from suppliers to customers to cover the costs associated with managing a prepayment meter (such as supplying vouchers and collecting payments).

Pros and Cons of a prepayment meter

Pros

Good option for landlords

For landlords, installing a prepayment meter means tenants will pay for their energy in advance, avoiding the situation where you as the landlord are billed for their usage.

No surprise bills

Because you’re only paying for the energy as you use it, a prepayment meter can be a good choice for those concerned about budgeting and don’t want the uncertainty that monthly energy bills may bring.

Cons

Risk of being cut off

With a prepayment meter, the moment your credit has run out, your energy supply will shut off immediately. This is known as "self-disconnection" and occurs when you either don’t have enough money to top-up your meter or do not realise that the credit on your meter has run out.

This can be considered an especially serious problem for prepayment meter customers who either rely on certain medical equipment, have a disability or long-term health condition, or have young children.

Fewer tariffs to choose from

Unfortunately, a large proportion of households on prepayment meters are in vulnerable situations and are currently unable to switch to a standard credit meter.  And because the market for those with credit meters is more profitable for suppliers, the selection of prepayment tariffs available is significantly less.

This means prepayment customers are unfairly precluded from more affordable and competitively priced tariffs reserved for credit meter customers.

Daily standing charge still applies

It’s important to remember that even if you run out of credit and don’t top up, you will still need to pay your supplier’s daily standing charge (the fixed amount you pay daily to remain connected to the grid or gas network). This charge will accrue in the background each day until you next top up.

Even if you opt for a £5 or £10 emergency credit from your supplier, this will not include the standing charge. Next time you top-up, the standing charges you have accrued will be paid first from the credit you’ve purchased.

What is a credit meter? 

What most homes in the UK use to receive their gas and electricity, a credit, or standard meter, is constantly recording your energy usage, with you billed once a month. While there is no risk of running out of credit and needing to top up like you would find with a prepayment meter, you will still need to keep an eye on the amount of energy you use to avoid high bills.

To ensure your bills are accurate, you will need to submit regular meter readings to your supplier, usually a few days before your bill is due each month. Otherwise, you will be billed based on estimates made by your supplier, which could be more or less energy than you actually use.

If you have a smart meter, your readings will be sent automatically to your supplierevery half hour.

Pros and Cons of a credit meter

Pros

Payment method flexibility

With credit meters, payments for monthly bills are usually made via monthly direct debit. With monthly direct debit, your energy supplier will estimate your annual usage and spread out the cost over 12 monthly payments.

Other payment methods such as cheque, credit card, cash, and quarterly direct debit are also available. However, although these options are overall more flexible and cheaper than a prepayment meter, they are more expensive than paying through monthly direct debit.

Wider range of tariffs to choose from

Although there are no energy tariffs available at the moment, under regular market conditions, those with a credit meter will have a wider choice of tariffs and suppliers to choose from than prepayment customers. This sector of the market is more profitable, driving competition for suppliers to offer more favourable tariffs.

Cons

Having to ensure your meter readings are always accurate

Unless you have a smart meter where your readings will be sent automatically to your supplier, you will need to submit regular readings yourself. If you do not do this at least a few days before your bill is issued, your supplier will charge you based on estimates.. This can often produce an inaccurate bill where you may end up paying either a lot more than you should be or a lot less. And if it’s the latter, you will need to pay the shortfall back eventually. This is known as ‘back-billing’.

Why are prepayment meters more expensive than credit meters?

Energy suppliers claim that managing prepayment meters is more expensive and that receiving automatic, regular payments via methods such as monthly direct debit through standard credit meters is cheaper for them. it is unfair that prepayment households are penalised for bearing supplier costs. These extra costs are known as the “prepayment penalty”.

However, Chancellor Jeremy Hunt announced that from 1 July 2023 this penalty will end. Prepayment meter households on their supplier’s standard variable tariff will no longer pay more than those with credit meters and paying via monthly direct debit.

How much does it cost to switch from a prepayment to a credit meter?

Most of the big energy suppliers will let you switch from a prepayment meter to a credit meter for free, but regardless of who you choose to go with, it’s always worth checking first before you switch.

How can I change from a prepayment to a credit meter?

If you currently have a prepayment meter and decide you want to switch to a credit meter, there are a few steps you should take:

1.     First, contact your energy supplier to ask about switching.

2.   Your supplier will confirm your eligibility by running a credit check, looking at your payment history, as well as any past debts you may have had with them.

3.   If you pass the check, an engineer will be sent to your property to remove your prepayment meter and install the new credit meter.

Switch your energy supplier

When using Switchcraft, we’ll find the best deals for your current meter type, whether that’s prepayment or credit. If you’re on a prepayment meter and looking to switch to a better deal that’s with a credit meter, Switchcraft can find you a supplier that won’t charge to have your meter replaced.