The importance of credit cards can never be understated in this day and age. Not only are they swift and reliable, but they are also extremely safe, which has made people from all walks of life apply for a credit card. One thing that the common man doesn’t know about credit cards is that there are two major types: secured and unsecured. As a result, when applying for a credit card, there is ambiguity in the mind of the applicant. This is never a good thing as all financial decisions must be made when everything is crystal clear and when you know all the details. To make things easier for our users, we have differentiated between the two types of credit cards and have listed their pros and cons.
Unsecured credit cards aren’t as popular among banks as their secured counterparts. The reason for this is that they aren’t supplemented by a cash deposit or any other collateral. This means that based on your monthly wages and current credit history, the bank will give you a credit limit. You will be required to operate within these means at all times, which means that an unsecured credit card’s limits will always be small.
Whenever you apply for a credit card, the bank will influence you to get a secured credit card instead of an unsecured one. Secured credit cards are almost always supplemented by a cash deposit equal to your card’s limit. This cash deposit acts as a buffer and removes the chances of nonpayment on your behalf. This means that if you buy something a bit beyond your financial reach and are unable to pay the amount within your next billing cycle, the bank will just take out the funds from your cash deposit. This makes these cards the ideal choice for banks to issue to applicants who may have used a debt consolidation service in the past or don’t have a credible credit history. Moreover, should you decide to transition to an unsecured credit card, your remaining cash deposit will be refunded to you (provided that you don’t have any outstanding dues).
Secured credit cards differ entirely from prepaid cards. When you make transactions via a secured credit card, your cash deposit doesn’t run out in the middle of your shopping spree.
These cards share a common element with unsecured ones in the sense that you will be required to pay back the money that you have been loaned within the grace period. Failure to do so will result in a high interest built upon the funds loaned to you.
It is clear as day why banks love issuing secured credit cards instead of unsecured ones. The former completely removes the chance of nonpayment from your behalf, which makes it easier for the bank to settle outstanding dues. This is the main reason new clients are asked to start with a secured credit card so that the bank has a contingency plan should the situation turn sour. However, for you, the choice depends entirely on your situation and what you are more comfortable with using. Don’t get swayed by the banks and stick to your decision.