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Personal Finances / Credit Cards and Consumer Debt


Subject:  Re: Secure Credit Card and APR Date:  1/15/2013  8:32 PM
Author:  aj485 Number:  306717 of 309665

Isn't the CD used as collateral in the case of a person defaulting and not paying on the credit card?

Yes, and in fact, the card company generally has to go through a bunch of hoops in order (i.e. waiting for the customer to be at least 6 months delinquent (thereby foregoing 6 months of collecting interest on the loan), writing off the loan, and possibly suing the borrower to get a judgement, depending on the state's laws) in order to seize the collateral. So, even if the borrower is perceived to be 'borrowing against their own money' - there are a lot of costs to the lender in order to claim that money from the borrower in case of default.

For the normal user, they would put charges on the secured credit card, make a payment, and possibly carry a balance. If they do carry a balance on the card, the 9.9% interest rate is the cost of the financial institution loaning money to the secured credit card user.

The CD has little to do with the interest rate. It is being held as collateral in the event the person defaults. 9.9% is a decent rate, so I'm gu