There are three main reasons for applying for a secured business credit card, otherwise known as a prepaid card; although they are different. First, a prepaid or secured card might be necessary for new business owners, who lack an established credit history.
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Second, those business owners with a poor credit history may find that the only way to get a business credit card is by securing it, up front, with cash! The most important reason for using secured credit cards; however, is to save money!
What are the advantages of secured business credit cards?
There is no interest charge on purchases made with either secured or prepaid cards, because the bank is lending back your own deposited funds. In some cases, banks will even pay you interest on monies they hold in your secured account, as required by new federal regulations. In addition, like any bank deposit, the Federal Deposit Insurance Corporation, FDIC, protects your security funds.
Some cards may require an application fee or assess monthly maintenance fees or other service charges, however many secured cards are offered without borrower fees.
How can the bank afford to do that?
Never feel sorry for a bank that has issued you a secured credit card. Reason number one, the bank already has your money, on deposit, as a guarantee for any charges you might make. Reason number two, every time you use the card, the bank and transaction processor earns fees, paid by the retailer or other merchant who accepts your card for payment.
Why doesn’t everybody use secured cards for their business purchases?
While using a secured card appears to be a win-win proposition for both consumers and their banks, many businesses resist the notion of using these secured credit tools. They have only recently gained in popularity in the wake of America’s on-going recession and global economic slow-down. Tight credit markets have left consumers with fewer, more costly options.
Are regular credit cards expensive?
Yes! The days of low, single digit credit card interest rates are long gone, as are most of the up-front incentives like 0% interest for the first 18 months that card issuers had offered to stay competitive. Following the banking crisis in the early 2000s, rates have stabilized in the mid-teens.
Credit card interest rates have trended slightly downwards in recent months, but remain at an average of 14 to 16% for both consumer and business credit accounts. While business credit card rates average a full percent lower than individual card rates, they are still high, and finance charges add up quickly when balances are carried from month-to-month.
Are credit card interest rates fixed?
No! In the past, credit card issuers could afford to offer low fixed rates, just as lenders who make home mortgages are able to do. This proved to be unprofitable for most banking concerns, especially in the inflationary credit markets of the 1980s.
Today, credit card issuers only offer variable interest rates, which rise and fall with the market. Most card rates are based on the bank prime lending rate, currently at 3.25%. A mark-up, or margin is added to this figure, producing the much higher rates you are charged. Depending on the bank, rates might not cap until they reach 20, 25, or even 30%!
I’d like to switch to a prepaid card, but how do I get out from under my credit card debt?
With the motto, “Never pay for anything with your own money,” Americans have collectively run up huge debt, which many are no longer able to manage or pay for. Coming to terms with your own debts and financial obligations is not easy, but the results will be better if you take action sooner, rather than later.
New businesses and non-profit agencies like ConsumerCredit are springing up to help consumers and business owners manage and gradually eliminate their debt. Helpful news articles appear on a regular basis in periodicals like Forbes and Money Magazine.
Can I get bonuses and premiums on my business credit card?
Yes! Many business cards feature the same kinds of promotional programs offered to individual consumers. These programs include, cash back features, awards and bonus points, which can be applied to a variety of goods and services. However, be warned. Business cards with these benefits will usually be charging higher interest rates and fees for the privilege.
For the best business credit card rates, use the credit card chaser tool now!