Unsecured Credit cards

The majority of credit cards are unsecured. An unsecured credit card is a loan where money is lent to you without any collateral. Without collateral the bank is at greater risk of losing the funds as they don't have a car to repossess or a home to foreclose on should you stop making payments or declare bankruptcy.

Because these types of credit cards are unsecured, the interest rate to borrow the money is significantly higher in most cases than a secured loan such as a mortgage or auto loan. The bank uses this higher interest rate as a form of compensating for the risk that you'll default on the card and the money you've spent won't be repaid.

Using an unsecured card is convenient, but the credit card is designed to be paid off every month to avoid paying interest charges. Should you fail to pay your entire balance each month, the total amount of money spent on interest charges will be far more than most secured loans.