Why is interest charged to use my own money on a secured card?

Official blog of Refresh Financial

Why is interest charged to use my own money on a secured card?

prepaid vs secured credit card

When credit is extended, it comes with interest rates. It's an unavoidable fact of life. It's very unlikely that you will find someone willing to loan you money and not charge you any interest! Secured cards are no different. Yes, it's your money that is being used to secure the card, but it's not your money that you are spending - it's the lender's.

With a secured card, the lender is extending you credit - allowing your credit limit, balance and payment information to be reported to the major credit bureaus just like an unsecured credit card. With the extension of credit comes interest.   

Your money is locked up tightly somewhere, only to be touched in the event that a) you cancel the card, or b) you don't make your monthly payments (which you should avoid in any way you can!) in which case your card security deposit will be used to pay your balance and your account will not go into collections.  Be aware, however, that just like an unsecured credit card, late or nonexistent payments will be reported to the credit bureaus  and will likely pull down your credit score - plus your secured card could then be cancelled. Your deposit is security for the lender, not a resource to pull from if you can't make your monthly payments.

If you are adamant that you do not want to pay interest, you have two options:

  1. Pay off the balance on your secured card in full every month, therefore avoiding interest payments.
  2. Get a prepaid card. With these cards, your money is not being used to secure the card, you're actually spending your money. You load up the card, and shop away - the balance decreases with every transaction you make. When you've spent everything that's been prepaid, you have to reload the card. With a prepaid card, no credit is extended, therefore there are no interest payments, and a prepaid card will not have any impact on your credit score - positive or negative. Without credit being extended, there is nothing to report to the credit bureaus. Learn more about the differences between a secured card and a prepaid card. 

Where can I get a low-interest secured card?

Refresh Financial offers one of the best secured cards on the market in Canada, with low interest, low fees, and a security deposit as low as $200 (most secured card providers require at least $500). Apply quickly and easily online today!

*This card is owned and issued by DirectCash Bank pursuant to license by Visa International. Use of the card is governed by the agreement under which it is issued. The Visa Brand is a registered trademark of Visa International. All credit and approvals are provided by Refresh Card Solutions Inc. DirectCash Bank provides no credit or loans. All funding and lending for this program is provided by Refresh Card Solutions Inc.

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