rayray asked: Lenders charge interest primarily to make a profit on a loan made and to offset the risk that the borrower will default on the loan and/or damage or destroy the collateral. But in the case of a secured credit card, it is not possible for the borrower to fail to repay the loan since the bank has an amount equal to or greater than the card credit limit that they are holding as collateral, and the borrower has no access to that collateral as long as they are using the secured card. In fact, a secured credit card issuer is not really advancing a loan to a borrower at all! They are merely providing a service of making the card and processing credit card transactions. There is no loan because, in effect, all possible charges have been paid in advance. Thus, it seems unreasonable and exploitative that they would charge the borrower interest on their charges when the bank isn’t actually lending the borrower money. It seems to me that secured credit cards should not charge interest, but rather simply charge a reasonable monthly service fee. Even this fee would be pure profit, because vendors pay transaction fees to the credit card company each time a credit card purchase is made, which covers the credit card company’s transaction processing costs. So allow me to propose one possible answer to my own question: Why do secured credit cards charge interest? Because the objective of banks is to ***** the little guy at every possible turn, until they own us all.
It would be true that there is a loan if the deposit account was accessible to the borrower whilst the secured credit card is in use, but since it is not, there is no loan. If you ask me to borrow $10, and I say give me $10 to hold while you borrow that $10, I have not given you a loan.
secured loan
