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Secured Credit Card Vs Secured Loans: Which is the Best

Credit cards have become a basic necessity of life. Shopping, traveling, health care and even feeding are paid for with credit cards and when you manage your credit card properly, it earns you good credit rating and financial institutions and other agencies see you as someone who is credit worthy and wouldn’t mind doing “credit-type” business with you.

Unfortunately, some people are not lucky enough, for one reason or the other, they find themselves on the other side of things with a bad credit card record, and they cannot get a credit card. For some others, they don’t have a credit history at all and may not be qualified to get a credit card. For these two categories of people, there is but one option left for them and that is secure credit cards.

Secured Credit Cards

Secure credit cards are cards that are backed by a cash deposit which is used as collateral and a credit line. For instance, you could deposit $300 credit and that qualifies you to make purchases of up to $300 with your credit card. This amount can be increased a long time by you or by your credit card issue as a reward for good repayments.

To get a secured credit card, you should get a list of secured credit card issuers around you. But if you belong to a credit union, you can easily get one from your credit union; a lot of credit unions offer their members secured credit cards with low interest rates.

The amount you choose to deposit in your secured credit card account is totally up to you. However, there is always a minimum amount. Sometimes it could be as low as $300 or $500. Some issuers would set your credit limit at the same amount you have deposited in your account as security while others would set it slightly above that amount.

Secured Loans

Secured loans are loans that have collateral securities backing them up. People who obtain secured loans can get lower interest rates on their loans because financial institutions consider it to be of lower risks than unsecured loans. If a debtor with a secured loan refuses to pay up, the bank can easily use the collateral security to get back its money.

Secured loans are a good alternative to get funds for people who have had their loan applications denied or people with bad credit reports. If you are looking to rebuild your credit score, you would likely have one major question on your mind; should you choose secured loans or secure credit cards as a way to raise funds? Let’s compare the benefits and disadvantages of both options-:

5 Advantages of Secured Credit Cards

  • Secured credit cards are an option for people who have been denied an unsecured credit card. So, if you have been refused a credit card and you really do need one, all you have got to do is apply for a secured credit card as the security deposit motivates the credit card company to issue a credit card to you bad credit or not.
  • Secured credit card issuers report to credit bureaus unlike prepaid credit card issuers who do not.
  • Secured credit cards are good for people who are interested in re-building their credit records. If you have got a poor credit score, you can rebuild your score with a secured credit card.
  • You can spend as much as you like without worrying about debt collectors running after you for late payments.
  • There is also the possibility of earning some interests on your security deposits as some credit card issuers place your deposits in an interest-bearing account which earns you some interests just for owning a secured credit card.

3 Disadvantages of Secured Credit Cards

Secured credit cards have the following disadvantages-:

  • Not everyone can afford a security deposit. If you have got some $500 to keep somewhere, why not use it to pay some bills?
  • Even though it’s a secured credit card, you still have to pay things like application fees and processing fees to get the card. This means that the security deposit is not the only money you would have to shell out.
  • The interest rates are also very high.

As for secured loans, these are some of the advantages and disadvantages-:

3 Advantages of Secured Loans

  • Attractive Interest Rates

With secured loans, the credit card company can relax on the interest rates and charges because they know that the chances of getting their funds back from you are higher.

  • Quick Processing

If you need your loan application approved with speed, then securing your loans is the way to go. You can expect to get quicker and favorable response if you are applying for a secured loan.

  • Easy Processing

There won’t be too much snooping around, investigating every single detail of your life with secured loans; the collateral security provides leverage.

3 Disadvantages of Secured Loans

  • Risky for the Applicant

Although secured loans are safe for the lender, it is risky for the borrower because anything could happen along the way which would make it difficult to fulfill your payment obligations and that means losing your security.

  • Another Priority debt in the bag

Most people who go for secured loans do so because they have bad credit and when you go for a secured loan, it’s almost like compounding the problem because you have added another priority debt to your record and it may lead to serious financial consequences.

  • Secured loans are not for everybody; it could look good on paper but it is much more risky than it looks.

Final Verdict

If you are considering if you should go for a secured credit card or a secured loan, I will advice that a secured loan should be taken for huge monetary needs like capital for business or to purchase assets. You should also ensure that what you want to use the money for either has long-term benefits or is guaranteed to bring some interests or profits that can be used to repay the loan. For instance, you shouldn’t take a secured loan to buy a personal vehicle just for luxury. As for secured credit cards, you could hold them as a way to rebuild your credit history.