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Credit Card Comparison
Unsecured Credit Cards
Most credit cards are considered unsecured, meaning you do not offer any collateral. There are pros and cons unsecured credit cards. This article will review how unsecured credit cards work and things to consider when applying for unsecured credit cards.
When you buy a house or a car, the financing you use for the purchase is secured by the item that you bought. If you default, the bank can take the house or the car from you and try to resell it to recover some of the losses it experienced from your default. Credit cards, though, are a different story. While there are some secured credit cards, the vast majority of them are unsecured credit cards – backed up by nothing more than your promise that you will pay the money back.
At this point, there is nearly $1 trillion in revolving debt in America right now, most of it in the form of unsecured credit cards. This is debt that does not have collateral that lenders can fall back on if the borrower fails to meet his or her obligation.
For the borrower, this means that there is a certain amount of protection. For example, if you default on your credit card payment, the card issuer cannot force you to sell your home in order to make your payments. Having unsecured debt protects you, to a certain extent, from having certain assets seized.
Unsecured debt like credit cards, though, does have its drawbacks. You may notice that the interest rate on your credit card account is higher than the interest you are charged for your home mortgage loan or for your car loan. This is because there is a larger risk that the lender will lose money. However, if you have a good credit history, chances are that you can get a reasonable interest rate of between 9% and 13% on an unsecured credit card.
Considerations when applying for unsecured credit cards
It is true that you want the best deal from your credit card. This can include a combination of factors such as interest rate, rewards program, fees and customer service. You want to make sure that you have a card that works for you in the four areas listed above:
Unsecured credit cards can be good financial tools. They offer flexibility and can provide cash flow solutions. However, you should choose them carefully, and have a good understanding of how to maximize the benefits to yourself.
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