A Beginner’s Guide to Cashback on Credit Cards

The expected, yet unexpected was happening, excitement in his eyes, joy in his feet, he was on the ninth cloud, probably it was the first time he was getting rewarded for something he used to get scolded during the whole of his childhood -cashback worth RS 2000 was successfully credited to his account. This is the story of millions of card users across the globe but not all, the cashback system may become the worst nightmare for some. To make it simple for you, we bring to you a beginner’s guide to cashback on instant credit card, so let’s start :

 

What is cashback on credit cards and how does it work?

Cashback is actual cash given as a reward to the cash holder for the amount spent by using the credit card, it could range between 1-5 percent of the total expenditure and is distributed monthly or yearly depending upon the card issuer. To enjoy the cashback reward, you also need to make sure that you pay your bills completely on time or you may lose the reward you earned.

Illustration: Suppose Mr. A has a monthly credit card bill of Rs 10,000 and his bank offers cashback of 2%, then he will receive Rs. 200 (2% of 10,000) as a reward by the bank. The bank may credit the amount on his next monthly bill or may even pay him separately as a cheque.

Are cashback and reward points similar? 

The cashback and reward point both work on the same principle they reward you for spending, hence, they may seem similar, but on one hand, where reward points can only be redeemed either by redeeming the benefits offered by the card issuer or they can be transferred to any of the issuer’s transfer partners; on the other hand, side, the cashback is actual cash which is either credited to your next monthly bill or is paid to you separately by cheque.

Should you own a cashback credit card – the benefits and implications?

The decision depends on the habits of a card user, to make the decision making easy and simple for you let’s discuss the benefits and implications of cashback on credit cards:

Benefits: 

 

• Earn while spending: The more you spend using a credit card, the more you can earn by just taking care of a simple thing i.e paying your credit card bills full on time.

• Extra discounts on certain websites and apps: Most of the popular websites offer extra discounts on purchases when a user pays the bill by using a credit card, which the issuer may not have gotten if they used any other mode of payment

• Sign-up bonus: The signup bonus is a bonus or an incentive offered by credit card issuers to a new credit card holder when they sign up for the card or make purchases with the card.

 

 

Implications:

 

• Trick you to spend more: The cashback system often tricks its holders into spending more, some credit cards even have a restriction of minimum expenditure to qualify for a cashback offer.

 

 

• High annual percentage rate( APR ): Many issuers charge higher Annual percentage rates (APR) on cashback credit cards than on cards without rewards.

 

 

• Restrictions on cashback offer: The cashback scheme does not apply to every single purchase made by the user, it is restricted to certain establishments only. Also, many times not only there is a cap on how much you earn using cashback but also, there could be a restriction on the minimum expenditure required to qualify for cashback offers.

 

Before it gets too late, you must decide whether you wish to be a cashback credit cardholder or not, you might be losing all that cash that may have been earned by being financially disciplined and by making purchases using cashback on best credit cards in India. You should also keep in mind that a cashback credit card could also be your worst nightmare if you are not financially disciplined and don’t pay amounts in full and on time, as it may trap you into a web of high-interest charges and debt along with losing all the rewards. So, what are you waiting for? Hurry up, it’s time to make the smart choice!