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How Does a Cash Back Credit Card Work?

How Does a Cash Back Credit Card Work?
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What is easier than earning some money back on the spending you put on your credit card? This is how cash back credit cards work and what makes them appealing to the customers. They come in a variety of categories and flavors. Cash back credit cards can be a great asset but it is very important to make the right choice. We have summed up some details on how cash back credit cards work.

What is Cash Back Credit Cards?

Cash back credit cards pay back a decided percentage for your spending. They are a popular kind of rewards credit cards. The different type of cards is loaded with different kind of benefits. A good card not only helps you save but also covers your expenses and builds a good credit score. Typically, there is a limit on the amount of cash back you can earn in a month.

Before Opting for Cash Back Credit Cards

You should have a detailed idea of your spending habits before digging deep into the sign-up procedure. Cash back cards are designed for different types of spenders. For instance, some cards may give you cash back when you travel, whereas, others might earn you cash back on your supermarket spends. The best cash back credit cards for you are the ones that suit your spending habits.

Once you have decided upon the type of credit card that suits you, you should sign up only for the ones that you will use consistently. Sending out numerous credit card applications is not a good idea as it has a direct impact on your credit score.

Cash back credit cards often offer you perks for signing up such as a sign-up cash bonus. Most of the time you need to spend a particular amount on your card to be eligible for the bonus. However, the best pick often is the one that offers a high consistent percentage of cash back rewards.

Annual Percentage Rate

Annual Percentage Rate or APR is one of the most important things to understand about cash back credit cards. An APR is the annual interest rate on your card. If you pay your outstanding balance on time and in full each month, you won’t be charged any interest.

The two things that can raise your interest rate are:

  1. A high APR on the credit card
  2. A habit of nothing paying your outstanding amount in full and carrying a balance

Depending on the APR and the outstanding balance, the interest can end up being higher than the cash back rewards earned.

Fees

There are few charges and fees that one should look out for before opting for any card, they are:

  • Many cash back credit cards come with annual fees just to maintain the card. The cards that carry a heavy fee often give you higher cash rewards for purchases. It is advisable to calculate how much you’re likely to spend and how much cash you’ll get back to find out your fee’s worth. The payback amount may be high enough to offset the fee. Otherwise, you should look for a card with low or no annual fees.
  • Late payment fees can also cancel out your rewards when accumulated. If your card charges a high fee for late payments, you should be certain to keep your payments up to date.
  • Another fee that you need to consider before opting for a card is the foreign transaction fee. It is often not taken into consideration, however, it affects you if you are traveling abroad or making any online transaction in foreign currency. If you think you will be spending cash internationally, you should opt for a card with low or no foreign transaction fee.

Redemption

Cash back credit cards offer different ways to redeem your accumulated point. Some of the redemption methods are:

  • Mailing you a cheque.
  • Sending you a direct deposit to your bank account.
  • Applying your rewards to pay off your credit card
  • Giving you a gift voucher for a popular store
  • Giving a donation to a charity of your choice

Most providers let you choose between the options the particular card offers. The redemption can easily be done by going online on the card’s portal or by calling the dedicated helpline number.

On an Endnote

You should consider opting for cash back credit cards if:

  • You have a good credit score. A good credit score helps you in nailing great deals on your cash back card.
  • You can pay your outstanding balance in full every month. This helps in avoiding higher interest charges as the banks with the best deals often offer high APR.
  • Your spending habits are predictable. This is not an essential requirement, however, if you are certain about where you will be spending, you can maximize your rewards.
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