What are Cash Back Credit Cards?
With a cash back credit card, a borrower is able to earn a small sum of money back on their purchases. While a credit card with reward offerings would generally just give points exchangeable for discounts, cash back credit cards actually give back money spent which can total hundreds of pounds each year depending on the cost of any purchases made.
Features of Cash Back Credit Cards
Typically, for every pound spent on a credit card, a cardholder will gain a small percentage back on their account. They tend to receive this amount with their monthly credit card statements by it being deducted from their credit balance as a way of saving money, though some cards specify a date when the previous year’s earnings will be credited to the account. Credit card with cash back lenders set these percentages at differing amounts, though it is usually between 0.5% and 1.25% of any money spent. Some credit card companies reward their high spending customers with larger cash back amounts, while others have a flat cash back rate for all customers, no matter what their spending level is.
The best cash back credit cards are those which combine high cash back percentages but also charge low interest rates. Particular cash back credit card deals can pay up to 5% cash back for an introductory term and don’t have an unreasonable cap on the amount that can be paid back to the cardholder. Some companies even push cash back credit card offers with rewards whereby a bonus is paid based on a customer’s top 5 purchases during that year. Such deals are even more appealing with low interest rates and applicants are encouraged to compare cash back credit cards on the market to find the cheapest lenders.
Disadvantages of Cash Back Credit Cards
Applicants must still go through the procedure of having their credit rating checked as is the case when applying for all credit cards. Cash back credit cards usually have stricter criteria, which often require their customers to earn over a certain level of income: in general, lenders don’t want to offer cash back to customers that don’t spend much; however most borrowers can find a cash back credit card they qualify for if they perform a comprehensive search of products on the market.
Cardholders still need to be aware that their credit balance must be paid back in full or else their lender will charge interest each day after the interest free repayment period ends. Credit cards with cash back schemes generally charge higher interest rates (on purchases, balance transfers and cash advances) than cards without such benefits as it is thought that customers will be persuaded to take the cards by the cash incentives. So what may appear to be a profitable cash back credit card offer may in fact cost a cardholder more than with a credit card with no cash back deal.
Also, the complexities in terms of credit card charges, rates and conditions may make it difficult for an applicant to work out the best cash back credit card deal available to them and so may again end up paying more than they bargained for.
Nevertheless, those in control of their finances and who are able to keep up their monthly credit card payments should benefit from using a cash back credit card to save money which can be put towards necessities such as food and household bills.