Cashback Credit Cards Guide 101 You Need to Read Before Applying

The most common reason why so many people prefer to use a cashback credit card for both online and offline purchases is due to the cashback they would receive on their purchases. Simply put, cash backs are a means to get a portion of the money you’ve already spent back. 

Cashback credit cards are among the most sought-after credit cards in the Indian market since they often feature lower annual fees but much better cashback benefits. When using cashback credit card cards, one can save a lot of money if one makes the right choice and knows how to use a card wisely to get the maximum benefit out of it. Let’s learn more about cashback offers and how it functions and what you should know before using them. 

What is a credit card with cashback?

Credit cards with cashback options let you turn your credit card purchases into cash by either giving you a portion of what you spent back in cash or in the form of reward points. Simply put, when you make a purchase with your cashback credit card, you receive a portion of the purchase price in the form of cashback. For every purchase, some banks additionally give you the option of earning reward points or cash points that you can later redeem or use to save money on other purchases.

Banks offer several different varieties of cashback credit card options. Travel rewards cards (which provide miles and points that customers can use whenever they wish to book a trip) and cash-back rewards cards are the two main types of rewards cards. It’s simple to understand how much you’ll earn on each transaction with a cash-back card. If your cash back credit card, for instance, HDFC credit card offers 2% cash back on purchases, you will receive Rs. 2 in rewards for every Rs. 100 you spend. In contrast, depending on the loyalty programme and current cost of travel, the value of points and miles in travel programmes can vary substantially.

How is cashback calculated?

Typically, if you use your credit card such as HDFC credit card to make purchases online and are eligible for a cashback, you will receive a portion of your purchase price back. There is an agreement between a credit card company and e-retailers in which the retailer is required to return a portion of each purchase’s price to the credit card company. The bank then decides to give the consumer a share of these profits. Depending on the credit card you use, the cashback varies.

When does it make sense to use cashback credit cards?

Cashback credit cards can be a terrific option if you can pay off your credit card balance in full each month consistently. This is due to the fact that you are being rewarded for spending money you would have otherwise spent. Cashback credit card are not a wise choice if you don’t always pay off your credit card account in full. Despite the fact that you will receive cashback on your purchases, this will typically be less than the interest levied on your outstanding debt.

What are the benefits of Cashback Credit Cards?

• Cashback credit cards allow you to earn cashback or reward points for every purchase and exchange them for cash, discounts, or gift cards. 

• In spite of the opportunities cashback credit cards come with, the annual charges of the cashback credit cards are low. Some banks such as HDFC credit card even go to the extent of waiving off the annual fee or joining fees if you spend a certain amount (it is usually Rs. 2 Lac per annum) on your cashback credit card in a year. 

• Offers additional benefits like complimentary lounge access and surcharge waiver.

Things to remember

Before using your cashback credit card to make purchases, you should be aware of a few things about this card whether you already have one or are considering acquiring one. 

First Understand Your Spending Patterns: Cashback credit cards are available from a number of card issuers, however, not all of them give the same cashback percentage. Different cards have multiple reward categories with varying reward rates. You should first examine your spending patterns and determine which categories you spend the most on before applying for a cashback credit card. Find the cashback cards that are most appropriate for those specific categories after analysing your spending patterns. Some cashback credit cards provide the best advantages for shopping, while others provide the greatest reward rate for travel. This is how different cards differ throughout various categories. If you randomly apply for a cashback credit card without knowing your spending preferences, you will not benefit from it.

There Is A Capping On The Cashback: Generally, the cashback that you earn using a credit card is not unlimited, but you can only earn cashback up to a certain limit. For example, if your cash back card offers 5% cash back on all your spending and there is a maximum cap of Rs. 2,000 per month on the cashback. Now, if you spend Rs. 75,000 using this card in a particular month, you will not earn 5% of it as cashback because 5% of 75,000 is Rs. 3,750, which is more than Rs. 2,000. Therefore, you will only earn Rs. 2,000 cashback, which is the maximum limit up to which you can get cashback in a particular month. Therefore, you can be mistaken if you ever spend a lot of money thinking that you will get a lot of cashback. If there is a maximum cap on the cashback, it is important to read the specific terms and conditions of your credit card’s reward/cash back system.

Some categories may not be eligible for cashback: Before making a purchase with a cashback credit card, you should be aware that there may be some categories for which your credit card does not pay cashback. The majority of credit cards in India, on the whole, don’t offer reward points or cashback on specific purchases, like cash withdrawals, wallet reloads, petrol purchases, EMI purchases, and many more. You should read the exact terms and conditions of your cashback credit card to confirm this and to learn which categories are not eligible for cashback in order to avoid unnecessarily overspending in those areas.

Understand where you will get the cashback: Every month, banks typically credit the reward amount to your card. Some cards, nevertheless, allow you to use your cashback as a balance in an online wallet that is exclusive to a certain platform. Certain cards also have merchant restrictions, and you may use the earned cash back on a few sites only. Therefore, before choosing a card, you should consider how the cashback will be credited.

Be Careful during holidays: Additionally, during the holiday shopping season, the tempting offers on cashback credit cards may be attractive but this is the time you need to be careful. According to experts, this could result in overspending and reaching your credit limit, which would trap you in a debt cycle. Do keep in mind that if you miss or don’t pay your HDFC credit card bill payment, higher interest rates and penalty fees would be charged. 

Conclusion

You must know which credit card suits you the best when making your selection. For instance, you might want to choose a credit card such as HDFC credit card that offers cash back or points for every purchase if you frequently shop online. While some credit cards offer a flat percentage back on your purchases, some offer a higher cash back percentage comparatively on your purchases. What you want and the type of cashback offer you want will all depend on you and your purchasing habits.