Over 189 million Americans have credit cards. And on average, they have at least 4 of them!
Maybe you’re just embarking on your credit card journey and you have no clue about this subject. For instance, what’s the difference between an unsecured and secured credit card?
We’ll explain below!
What Is an Unsecured Credit Card?
An unsecured credit card is a type of personal loan (learn more about them with Bonsai Finance). As the name implies, you can be approved for one without having to offer things up as collateral.
Because of this, the lender takes on a bigger risk. As a result, interest rates for unsecured credit cards are typically higher. It also means it’s harder to get approval for; you usually have to have good credit for approval.
What Is a Secured Credit Card?
A secured credit card is also a type of personal loan. However, your repayments are backed by collateral, which means the lender takes on a lower risk. If you aren’t able to pay back your debt, then they can take whatever you’ve offered as collateral.
As you may have guessed, this means interest rates are typically lower for secured credit cards. It’s also easier to get approval, so it’s great for people who have either no credit or a poor score.
Which One’s Right for You?
Both types of credit cards will help you build your credit card and have the possibility of annual fees. However, they have their own pros and cons.
For example, unsecured credit cards have higher interest rates but probably won’t have setup fees. You’ll also be able to earn rewards and additional benefits, which can make having a credit card really worth it if you spend money in the right places.
On the other hand, secured credit cards will have lower interest rates. However, you won’t get additional rewards and benefits, plus you’ll have to put down a security deposit.
But if you don’t have any credit (or have a poor score), this will be a much better option, as you’ll have a better chance of approval. You can then use this card to raise your credit score and potentially get an unsecured card in the future.
Depending on what you hope to get out of your credit card, one will probably suit you better than the other. You can always speak with a representative of the lender to get a better picture of what they can offer you.
Choose the Right Credit Card for Your Needs
Now you know the difference between an unsecured and secured credit card. Hopefully, this should help you determine which one is right for you when you go to apply for a credit card!
Remember to always check the fine print before you sign for anything. That way, you won’t be in for any nasty surprises in the future.
Would you like to learn more about personal finance? Then make sure you check out our other blog articles.
To read more on topics like this, check out the Money category