Cashback on Credit Cards: A beginners guide

Cashback credit cards are used more often than any other type of credit card. But how do they work and are they better than reward credit cards?

Cashback is an exciting feature that dominates our decision-making when we buy things. It is an incentive that users get when they make purchases or pay bills. The credit and debit cards cashback function allow the cardholder to receive a percentage of eligible spend (usually 0.25-5%). Read on to know everything about cashback, how they work, and why you should consider buying a cashback credit card.

What is cashback?

When you purchase something, you are given a portion of the price as a refund. Hence, you can also view cashback as a way of saving money on purchases. Cashback is usually reserved for credit cards, although certain current accounts and debit cards also offer it. While cashback comes with purchases, you can also get cashback on paying gas, electricity, and mobile bills.

How does cashback work?

If a credit card offers 1% cashback on all transactions, you may receive ₹50 for every ₹5,000 you spend. You get a portion of your expenditure back in rewards every time you utilise the card. This cashback is usually distributed once a year, while some cards offer monthly cashback as well.

However, none of it adds up if you do not pay off your amount in whole each month. The interest might cancel out the cashback benefit, forcing you to pay more than you earn as a reward.

Cashback credit cards: Should you get one?

Cashback credit cards can be a good option if you pay your credit card balance in full every month. It is because you are compensated for spending money with exciting rewards. However, cashback credit cards do not work when you pay part of your credit card bill. Although you get cashback for your purchases, it is likely less than the interest you are paying on the credited amount.

Is there a difference between cashback credit cards and reward cards?

Yes, cashback credit cards are different from rewards credit cards. While the two are often used interchangeably, cashback credit cards are more rewarding.

With cashback credit cards, customers can earn with every purchase. Reward credit cards do not offer this feature.

Instead, they award reward points for making the purchase. The norm is one reward point per rupee spent, but it may vary. Customers can use these points to redeem benefits offered by the card issuer, or they can transfer them to any of the issuer's transfer partners. Products and gift cards are frequently offered as rewards, but many cardholders choose to spend reward points for travel perks, such as flights and hotel accommodations.

How to earn additional cashback through your credit card?

When you are making a purchase, some sites offer additional cashback while using specific credit cards. Some banks, such as IDFC FIRST Bank, have tie-ups with certain E-commerce sites. This tie-up allows you to make the purchase using the credit card and earn a certain percentage of the money spent. This cashback comes in addition to whatever discount or cashback you have already received. Most E-commerce sites also offer additional cashback during sales.

IDFC FIRST Bank credit cards offer both cashback and rewards to help you earn more. The interest rate is also comparatively lower, and there are many other benefits you can enjoy. Get your hands on one of the best cashback credit cards in the market.

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.