Cash back credit cards offer the dual advantage of worldwide acceptance and lucrative cash rewards. Cardholders are paid back a percentage of their purchase amounts, whenever they use it. Leading banks and financial institutions, such as Citibank, HSBC, Capital One and Bank of America issue cash back credit cards.
Cash Back Credit Cards: Features and Benefits
Whenever a merchant accepts card payments, he/she gives a fixed percent of the transacted amount as a commission. This commission is remitted to the bank that issues the credit card. In cash back credit cards, the issuers share this commission amount with the card holder in the form of monetary rewards or reward points. The cardholder is usually repaid 0.5-2% of the net card expenditure. It is directly credited to the bank account or to the holder automatically.
The reward points offered by cash back credit cards can be exchanged for lifestyle merchandise or travel packages. It can also be redeemed at gas stations. They also reward the cardholders in the form of attractive rebate options. Some cash- back cards are available with a joining bonus of reward points.
- Also, most of the issuers do not charge annual fee. Hence, if a cardholder pays monthly bills on time, there is no requirement to pay any annual fees.
Problems Associated with Cash Back Credit Card
Cash back credit cards have a few problems associated with it, but they can be avoided if one exercises caution:-
- Interest rates: Such reward cards charge higher interest rates compared to standard cards. The cash back reward is also diluted by the interest paid on the cardholder’s balance that is due. It is vital to select cash back credit cards only if monthly payments can be fully paid back.
- Retail tie-ups: Numerous cash back rewards are offered by the issuers yet they are restricted to their partner entities like the drugstore, supermarket or gas stations. To get the best out of cash back credit cards, choose only cards that offer rewards for shopping at diverse or usual outlets.
- Caps: Some cash back cards offer cashback or repayment rates of up to 5%, but they also have several strings attached. Usually, the cash back payments are valid only up to a particular payment limit. For example, the 5% cash back that is offered for card transactions at gas stations and auto maintenance outlets may be applicable only for initial transactions that are worth up to $1200. Such ‘strings’ are common with cash back cards to lure card holders into spending more than they require.
- Alter Terms: Be aware that credit card issuers have the right to alter the cash back agreement. So, the terms of your cash back offer may not be applicable tomorrow.
- Penalty: A typical cash back card features a short grace period and heavy late payment penalty.
Cash Back Credit Card: How to Apply
Those who have attained the legal ‘age’ to enter into transactions can visit the issuer’s website and apply online. Applying on the phone or in-person at a bank branch is also possible but only those applicants with excellent credit rating are considered for credit approval.