Who doesn’t like to flaunt a piece of plastic in their wallets, especially when it gives you immense purchasing power? What then would you say that in addition to the purchasing power a card gives you, it can also give you the option to receive a portion of the money you have spent by way of a cash back reward? Read on to know more.

Cashback Credit cards work like all other cards do – you utilise them in the same manner, enjoy a credit limit and can even withdraw cash against the card. But additionally, there’s also the feature of allowing the cardholder to get ‘cash back’ on the purchases you have made.

How do cashback credit cards work?

When you use a card at a merchant establishment, depending upon the reward that your particular card offers, you will earn that sum back by way of credit to your card account. So for instance if your card gives you a cashback of 1 percent every time you make a spend of Rs. 100, Re. 1 will be credited to your card account.

How can you redeem this sum?

Most cards offer to credit the money back to the card account at the end of the month, while some others may even do so on an annual basis. And if the cashback is being offered by way of reward points, the cardholder can choose to redeem these points for a reward of their choice upon accumulating a sufficient number of points.

What is a typical cashback structure?

Not every card carries the same cashback reward program, so before you choose your card, make sure you understand in detail the card features.

• Some cards offer a flat amount by way of cashback, irrespective of the amount you spend, or what type of purchase you make. There may however be a minimum value cap placed to be eligible to avail the cashback.
• There are cards that offer a percentage or tiered amount by way of cashback. For instance, an annual spend of Rs. 50,000 entitles you to a 2 percent cashback. But should you spend less than that, then the cashback amount is downsized to 1 percent.
• There is also another option, wherein the cashback amount varies as per where the spend is made. For instance, a fuel station cashback for purchasing petrol or diesel for your vehicle will entitle you to say a 2 percent cashback, while a spend on grocery may entitle you to 1 percent.

Why should you avail of a cashback card?

So is there any reason to choose a cashback card over any others? Yes, indeed! Cashback cards work beautifully when you are one of those cardholders who make their card payments on time, on or before the due date and do not roll over any outstanding amount. The math is simple – when you pay each month in full, the amount you receive by way of a credit is a neat sum of additional funds in your account! In a way, your spending judiciously is earning you a decent reward!

The fine print

Here are some things you should know, before you run to make that card application.

• The annual percentage rate, or APR – Typically with a cashback card, the APR tends to be higher than it would be with a standard card. Hence for those times that you choose to carry forward the balance, you would wind up paying a significant amount of money by way of charges. This is one reason why cashback cards work best when you pay dues regularly.
• Annual fee – Again, as with the APR, a fair number of cashback cards come with an annual fee, that is likely not waived. Check for this sum – if it is large enough to negate any cashback you are likely to get (especially if your spends are infrequent), it may not be the right card for you.
• Other fees, and terms and conditions – Check for any introductory offers, and how once those are done, using the card will impact you (if at all). If it means a rise in cost by way of fees and charges, you may want to reconsider your decision to apply.

The bottom line

Remember that ultimately, whether you avail of a cashback card or any other, it is money you are going to have to repay. Hence it is prudent to be wise not just with your spends but also with choosing the right card. Further, using your card unwisely can result in a CIBIL dispute, or having to learn how to remove name from CIBIL, a situation you would like to avoid at any cost, in order to maintain your financial health.

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