Why You Should Not Choose Cash-Back Credit Cards?

Today, there aren’t enough reasons not to use credit cards, esp. when they are loaded with lucrative cash back offers. As far as credit card companies are concerned, cash-back is a strategy to garner a larger pie of ever-increasing spending levels of urban middle-class customers; on the other hand, customers are happy as they can get a portion of their spendings back. However, the real devil lies in fine print, which average Indian tends to overlook. Usually, cash-back offers are subject to several qualifications & conditions, which limit its optimum utilization for customers. Let’s look at few of those pitfalls…

1. Cash-back offers are available with minimum purchase limit: For instance, HDFC’s value Plus Credit Card, which allows 5 per cent cash-back on money, spent on railways, hospital and medical stores; comes with a condition that cash-back will be valid, only if the outstanding amount on your current statement is higher than Rs 10,000. Here, what an individual does not know is that cash-back offers are subjected to total outstanding amount. Similarly, HDFC Bank Business Gold Credit Card gives you 1 per cent cash back on domestic air tickets and utilities bill payments, only if the minimum amount spent is Rs 7,500.

Pitfalls In Major Cards

In order to protect their interest, banks usually put a cap on maximum monthly amount that can be claimed in the form of cash-back. This helps banks estimate their claim liability well in advance. The cap can either be in terms of maximum money that can be claimed and/or number of transactions on which you can claim cash-back.

In practice, banks are merely doing their own good.

2. Cash-back cards are not free: For the same, banks charge joining fee. For instance, Axis Bank Advantage Platinum Card charges you Rs 1,000 as joining fee and Rs 500 as annual renewal fee. Likewise, Royal Bank of Scotland’s One Credit Card charges you Rs 295 and Rs 595 respectively. In many cases, banks pitch their customers saying there is no annual fee, whereas the truth is that annual fee in some cases can be waived off, if you spend a minimum sum within a stipulated time. The example of this is Axis Bank Platinum Card, which waives off Rs 500 joining fee, if you spend Rs 5,000 within 45 days of card setup.    

3. Available on restricted to specific heads of expenses: Most of the cash-back offers are available on purchases of groceries, dining, entertainment, apparel, travel tickets, petrol, etc., and not on general purchases. Even, under these heads, cash-backs are generally available for one or two heads for a particular credit card. Also, while spending under some of the heads is not important and hence cash back earned under, let’s say, entertainment, dining, movies, etc., encourages unnecessary use of credit cards, which might not suit you in the long run. For example, Trump Gold Card offers 10 per cent cash-back only on the money spent on dining, movie and entertainment. 

4. Few partners network only: The cash-back offer is available, only if, you spend at already-listed merchants. For instances, in Axis Bank Platinum Advantage card, the 25 per cent cash-back on movie tickets is offered on transactions made at only those Merchant Establishments, which are classified under 'Motion Picture Theatres & Restaurant' Merchant Category Code, as defined by VISA. Indian Oil Citibank Titanium Credit Card, for example, will offers cash-back offer at Indian Oil outlets only.   

In addition, it is also important to note here that in most cases, the cash-back offers are triggered only when the card is swiped at the card issuer's merchant establishment (which has its swipe machines). It is again a practice to maximise bank’s income as the money a bank makes on a credit card is shared between card-issuing bank and the bank on whose machine on which the amount is swiped.

5. No clubbing of offers: You cannot club cash-back offers given by different merchants from which your card has tie-ups. Most issuers restrict this practice. For instance, you have a credit card, which has tie-ups with venders providing two offers – 10 per cent cash-back on movie tickets and one ticket free for every two movie ticket purchased during a particular month. Here, you can avail only one of the two offers.

6. Cash back don’t happen immediately:

Usually, it takes up to 20-30 days for the cash-back money to reflect in your statement. Please note that if your card requires a minimum balance outstanding, you would have already paid the interest for which you would get cash back after 20 days or so. Also remember, while cash back is a one-time affair, interest is not.

Generally, you have up to three months from the date of purchase to claim the cash-back money. To conclude, any offer on credit cards exists to encourage more spending. So you shouldn’t be lured into the trap.