Nov 17, 2008

Credit Cards Cash Back Offers: Always Read the Fine Print

ALMOST ALL MAJOR banks, who issue credit cards, run cash-back offers time to time as promotional schemes for limited periods. These schemes offer you cash refund on your spends which may vary from 1% to 100% depending on certain factors.

These offers are steadily gaining popularity because customers prefer cash back offers to reward points due to instant gratification these offers provide.

But, why do these credit card companies tempt you to buy more and more using the plastic money by offering you various incentives? What’s the catch? First, actually these offers are not as rewarding as they appear on the face of it. Second, whatever small rewards they offer gets more than compensated by the higher spends on the credit cards and as a result they get more commissions from the merchants. Third, a lot many customers get themselves into debt trap by availing these schemes and consequently become more profitable for the card companies.

Before going in for these offers, make sure that you understand the exact benefits as well as the conditions attached to these offers because fine print – smaller and less noticeable – often says exactly opposite of the larger print it accompanies.

Here is a list of some of the common conditions attached to these deceptive offers:

1) Maximum cash back (during scheme duration)
In most of the schemes there is a cap on the maximum cash back allowed per card during the entire scheme duration.


2) Maximum cash back (in one billing cycle)
There might also be a cap on the maximum cash back that the card provides in one billing cycle. Suppose cash back @ 5% is allowed on every purchase but the maximum amount in a month is not to exceed Rs 500. It means that any purchase over and above Rs 10,000 won’t be entitled for a cash back.

So before you buy that enticing TV set, lured by the 10% cash back, hold back. If the TV costs you Rs 100,000, you should receive a cash refund of Rs 10,000, but if the maximum cash back per month is restricted to Rs 500, then your effective cash back rate becomes just half per cent instead of 10%.


3) Minimum spend
Generally, it is also mentioned that transactions below a specified amount, say, Rs 2000 won’t be entitled to participate in the cash back scheme. Further, in many cases in addition to minimum spend per transaction, minimum spend per month is also specified.


4) Card Swiping Machine
Do you ever bother to check, which bank’s card swiping machine is being used by the merchant? You probably don’t. But if you are really interested in getting cash back, make sure the card is swiped in the right machine because many card companies insist the card should be swiped in their own machines in order to be eligible for cash backs.


5) Reward Points
Cash back transactions are not eligible for reward points.


6) Transactions not eligible
There are certain transactions like fuel purchase which are not eligible for cash back schemes. Furthermore, in case the offer is specific about the kind of purchases that can be made, then all other types of transactions get excluded automatically.


Conclusion
If you are not careful, you may end up spending in excess
- by buying the stuff you won’t need – just to avail the cash back. In the end, your savings by way of cash back gets more than offset by the excess spending you do which may also get you in debt trap.

Therefore, don’t overlook the finer details so that you don’t curse yourself later on because various conditions are attached to these schemes. Although just another marketing trick, if understood properly, you can make the most of these offers.

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