Difference Between Secured and Unsecured Credit

Nowadays, individuals desire to do tasks quickly, and payment transactions are not exempted from this trend. With the trouble of withdrawing or finding loose change to pay for a purchased item, most now prefer to recompense in a cashless manner.

This is made possible through credit cards. What are these? These are a plastic cardboard issued by banks, financial entities, or institutions to enable the bankcardholder to make purchases within the set threshold; the bankcardholder technically borrows funds and promises to recompense the provider before a set date; otherwise, a penalty will be charged against the holder for them to reimburse interest on top of the used balance.

This alternative payment method is now mainstream, and most merchants in urban areas accept them as a mode of payment. Of course, this type of currency-keeping medium is also utilized conveniently for online transactions.

What most people don’t realize, though, is that there are two kinds, and there’s a difference between secured credit card and unsecured credit card. This piece will uncover these variances. However, it is noteworthy to begin by discussing each one individually.

Definition of Secured Credit

Secured credit is a class of credit card that mandates its owner to have a deposit fund in the same bank. This denotes that the card is tied to the holder’s bank records, and any unpaid dealings can be easily deducted from that individuals financial holdings. That bank account connection is one main difference between secured and unsecured credit cards. Secured variants also enable the establishing of one’s credit history and boosting their credit grade. A positive credit score can give them better chances of getting approved for a mortgage, business, or personal loans.

This is the reason why a secured credit card holder needs to be a reputed payer, so they can maintain a positive credit score. Since this type functions just like a regular credit card, they can use it for purchases for them to renumerate at a later time, preferably before the due date, so the transaction won’t incur interest or so that a forced deduction won’t be made out of their bank account. This is one other distinction that makes the difference between secured and unsecured credit clear.

Definition of Unsecured Credit

Unsecured credit is a type of credit card that does not mandate a security deposit upon acquisition This implies that an individual can request and be approved for this version of a card without an existing bank account with the provider. This is one major difference between secured and unsecured credit card.

Due to this unstrict policy, most people prefer this kind, since it means that their hard-earned bank account savings won’t be deducted in case of payment delinquency. This also makes acquisition of one easier than the other. Even mall stalls offer such type of card with very little document requirement, which makes this type attractive for most.

The difference between secured and unsecured credit cards in terms of amassing, though, is that the bank (or the card provider) has other ways, in the latter option, to collect the monies that the debtor has transacted for. They can seek a third-party collector’s aide, file a case in court, or request for the court’s assistance in collecting the amount from the debtor’s salary.

Secured vs Unsecured Credit Comparison Table

Now that we have explained the definition of each, let’s look closer at what's the difference between secured and unsecured credit cards through laying out their characteristics. Below is a table with main differences between the concepts.

Secured Unsecured

Function

Alternative payment method, for enhancing credit score - Alternative payment method, a method for delayed payment of purchases

Requirement

Existing bank account with approver - Lack hereof bad credit records from banks or financial institutions

Collection method

Bank account deduction or bills payment - Bills payment

Management for delinquent payors - Forced deduction from bank account Court case, through third-party collectors

Based on the tabular comparison above, you must now grasp what is the difference between secured and unsecured credit card. They have difference in terms of prerequisites, amassing method, and management for delinquent payors. However, they are somewhat similar in their function for cashless transactions.

Conclusion of Main Difference between Secured and Unsecured Credit

To objectively identify what kind you will seek, it is vital to clearly grasp what is the difference between secured and unsecured credit cards. This will also assist you in determining from which brand you’ll open your credit card with. No matter which you choose, it is essential that you appreciate the importance of being a good payor. If you take a secured one, you must pay on time, or your personal savings, which you might have saved to procure something else, will be reduced by your debt. Having a bad paying reputation may also impact your credit grade and lower your chances of receiving approval for loans involving large sums.

If you take the unsecured kind, it is also essential that you meet deadlines in terms of payment. You don’t want to be contacted by the court if you fail to live up to your promise of paying or if you do not at least attempt to pay off your purchases little by little. A good practice will be to pay for the swiped purchase as soon as possible to keep your reputation clean and your backer, happy. After all, we are lucky to be able to make cashless transactions. What we must remember is that they’re not cash-free.