Banks and other companies that lend money exist to make money. And since business is their main goal, they can't let profit get in the way. No matter how much money they have, all businesses want to grow and make money. The system is so easy to understand: the product is the same as the capital, plus a percentage for profit, and that's a business. People in business always make sure their capital is safe, and they are determined to make money from it.
This is true for credit banking and loans as well. The interest is what keeps this business going. It's where the company's profits come from. In loans and credit banking, on the other hand, a certain amount is given in cash or notes as part of the company's capital. This money needs to be paid back on time so that the money keeps growing and rolling. When a debtor or credit card holder doesn't pay and runs away on purpose, the company's interest or profit builds up, but the capital is lost.
Because of this, you can get both secured and unsecured credit. In a secured credit, the company will ask for a piece of collateral worth the same amount as the loan. When you get a mortgage, the house is the security for the loan. Later, the company will buy the collateral and sell it to get back the money that the debtor lost.
This is also how secured credit cards work. When it comes to house loans, the house is the collateral, and when it comes to car loans, the bank account that holds the amount of the credit is used as collateral. By doing this, the company won't have any reason to worry about whether or not a creditor will pay.
Secured credit cards may have lower interest rates because the amount used as collateral protects the company's capital. The interest rates on unsecured credit cards, on the other hand, may be higher than those on secured credit cards because the debtor has nothing to back up his promise to pay.
You can get a secured credit card from any bank near you that has this service. In general, all banks use secured credit cards to make the process of getting a loan easier. The more money you put into a bank account, the more credit you can get. So many times, banks reward good creditors who pay on time. These rewards could be things or money. Cash is sometimes added to a creditor's deposit, so the creditor doesn't have to make another deposit to the account, but the credit limit goes up.
Most of the time, the bank wants a deposit that is equal to or greater than the credit limit. This means that banks would actually charge a client $300 to $500 as a credit card deposit or guarantee.
Secured credit cards and unsecured credit cards each have their own pros and cons. But the company in charge of the credit card, whether it's secured or not, will now be responsible for how it works. The credit card is ugly because of the rules that lending companies and/or banks have. Interest rates are a part of it; they are the lifeblood of the business. However, too much interest and rising rates hurt more than just the customers.
