What is cashback?
When you make a purchase, cashback is the process of receiving a percentage of that purchase back as a form of incentive. You can earn cashback on purchases including fuel, supermarkets and certain retail stores. This is mainly a feature of credit cards, but some current accounts have adopted the same feature. For this article we will focus on credit cards.
How does cashback work?
Each time you use your credit card you earn a percentage of your purchase back in the form of cashback. For example, if your credit card offers 3% cashback and you spend £300, you will earn £9 cashback. For those who use credit cards frequently, cashback could be a great way to get more for your money. For anyone considering getting a credit card that offers cashback, these are the things you need to know.
- Cashback can be paid monthly or annually. If you want to keep your card for a short period of time, then a card that offers a monthly release of your cashback would be most ideal for you. If you plan to keep your credit card long-term, then a credit card that offer an annual release of your cashback could be a substantial sum.
- Many cashback credit cards will apply your cashback to your credit card statement, however some cards give you the option to receive your cashback directly so you can spend it.
- A cashback credit card will be beneficial for you if you pay off your credit card bill in full each month. In a nutshell, you’re being rewarded for money you intended to spend anyway.
- You can still each cashback on purchases if you don’t pay your credit card bill in full each month, however the cashback earned is usually less than the interest charged on your overall debt.
- It’s important to be cautious of credit card providers that may up sell cashback credit cards with the promise of earning a significant amount when purchasing fuel or doing shopping. If you didn’t intend to apply for a cashback credit card and you’re comfortable with your spending routine there’s no need to change that with the hope of making extra money.
- Some cashback card providers charge a fee for the card itself. This fee could be up to £30 depending on the features of your card. If you are considering applying for cashback credit card, it is essential that you read the fine print of your agreement to be sure that you are happy and to avoid unexpected surprises.
Debt management should be a priority to maintain financial stability and to improve your credit score. Lenders often refer to your credit score when applying for mortgages, credit cards or loans as a guide to how you manage your money.
T K Williams-Nelson