The debate of secured credit card vs unsecured has been one that’s been argued for a while as both offer different benefits. Secured cards require a security deposit as collateral. An unsecured card, according to SoFi, “doesn’t require a deposit or collateral of any sort. Instead, you’re offered a credit limit based on your creditworthiness and other factors, such as your income and existing debt.”
If you’re in the market for a new card, it’s important to understand both options before deciding which is right for you.
How unsecured credit cards and secured credit cards differ
Secured credit cards are more restrictive than unsecured credit cards because you have to deposit money in a savings account as collateral. This money will be used to pay for any charges that you can’t pay off with your monthly payment. If you don’t have the cash available to make up the difference, it’s possible that your issuer might pull out your deposit and use it to cover some or all of those charges.
On the other hand, an unsecured card offers more freedom because you don’t need to put down any money upfront. However, if this type of card isn’t used responsibly (and thus results in high balances), then interest rates will be much higher than they would’ve been with a secured product
Similarities between unsecured and secured cards
Both unsecured and secured credit cards offer a way to build and maintain your credit, which is important if you want to get a mortgage or other loan in the future.
Both types of cards can have low-interest rates, so you pay less money on your purchases. If you’re interested in rewards programs that give cash back or points towards gift cards, both types of cards will let you take advantage of those benefits.
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Both require that you put down a deposit as collateral against potential charges (the difference being whether it’s required upfront or at the end of each month). Both also have limits on how much money can be spent each month before fees are charged (although this amount varies depending on the type of card).
Additionally: While some unsecured credit cards don’t offer cash advances (basic withdrawals from an ATM), most do; similarly to secured credit cards (but not always).
Application requirements for Secured credit cards & Unsecured credit cards
If you’re looking for a credit card, you’ll want to know what the application requirements are for both secured and unsecured cards. Unsecured credit cards are easier to get than secured ones, because they don’t require any kind of deposit. But if you have bad or no credit, then an unsecured card might not be right for you—and even if it is, there’s still a good chance that your application will be declined.
Secured cards do require a deposit—but this deposit usually isn’t as high as what banks and other lenders would expect in order to approve someone who has little or no financial history (meaning they haven’t been borrowing the money). Also, since secured cards tend to have lower interest rates than many other types of consumer loans like personal loans or mortgages on homes (for example), they’re often considered safer options overall.
In the end, deciding which type of credit card is right for you comes down to personal preference. If convenience is important to you and you don’t want to pay a deposit that could be several hundred dollars, an unsecured card may be the way to go. If security is what matters most, then secured credit cards are probably better suited for your needs by virtue of requiring no collateral or minimum balance requirements as well as having lower interest rates than unsecured cards do.
