Cash back Credit Card – Cash back credit cards are reward packages run by credit card companies. Usually presented as a motivation for cardholders to frequently use their credit cards for purchase and online transactions. The rewards program isn’t limited to just cash backs, there are rewards like getting points and flyer miles. The monetary reward is what is called cash back.
When a cardholder makes an online payment, they receive percentage returns of 0.5% to 2% depending on the item bought and medium used. The merchants who sell goods under the cashback rewards program, pay a certain percent back to their banks. The banks then split the percentage with the card issuers who also share with the cardholder.
This commission paid by merchants doesn’t give them the right to trade items at an increased price. They are rather obligated to keep prices to the barest minimum. The cardholder receives this reward and somehow is intrigued to use their card frequently.
Who Uses Cash back Credit Card
Cash back credit card (s) are not for consumers who don’t clear out their credit at the end of the month. That is to say, that debtors are not entitled to cash back rewards. This restriction is because the annual percentage rate for items owed will be higher than what the cash rewards can cover. The products listed under cash back programs come with high-interest rate if items are not paid for instantly or within a month.
When cashback rewards program started out in the 1990s, card issuers placed the cash-back percentage at 5%. It started with a motive to get consumers to apply for credit cards and at the time the offer was for purchases made at grocery stores and pharmacies. Purchases on any other product had cashback of 1%.
The rewards program was subject to change with the tides of the economy and public policies. In 2010 the cashback percentage was debated on for a reduction. In 2012 a subsidiary of the cashback card was made for gas purchase. The price of gas had gone up high and consumers could see the benefit of the APR from their gas purchase.
These changes continued till the current APR of 0.5% to 2% depending on the items bought and medium used.
Shortfalls Of Cash back Credit Card
It Comes With A Catch: These credit card companies have the sole aim of luring you to enticing offers. The main deals for cashback rewards come in specific categories of products, not every product.
Spending Limits: Most cash back card issuers set limits on their cards that a user has to reach before accessing the cash back rewards. Like maximum amount (say $1,500) for which they can return a percentage.
More Debt, No Cash Back: When you owe even a carry balance on your bills, your cashback will be canceled and the card issuer will make more profit to your name. More or less, there’s a monetary transfer from low-income figures to high-income figures.
Spend More, Save More: This rule isn’t entirely true. Most credit card companies require cardholders to renew the rewards programs quarterly. Also enticing you to buy a piece of gadget or clothing that is unnecessary before the next renewal.
Unless you are able to pay off your balance every month then you can get the full benefits of the rewards programs. And while these credit card companies remind you to pay your bill in full, if you don’t go through with it the more interest they earn. And in the long run, your debts will cancel out any rewards you may have earned.