Cashback meaning – A partial refund for credit card purchases
Tips / 09.11.2021
Nothing beats getting money, right? But how can you get money based on your spending? The answer lies in the concept of cashback. If this is a new idea for you and you’d like to find out more, then just keep reading to find out more.
In this blog post, we focus on the meaning of cashback, how it works for consumers, what its pros and cons are, as well as the implications for merchants. Now, let’s take a closer look.
Table of Contents
What is cashback?
Let’s look at cashback’s meaning. In brief, this is a type of monetary reward that a consumer gets in their account each month, annually, or via cheque form, for shopping at select retailers with a credit card.
This means that the more they spend at these select retailers – whether physical or online – the higher their chances of earning a percentage back on the total cost of the item.
Although introduced as far back as around 1986, cashback has been and continues to be a popular reward program for both credit cards issuers and customers alike.
In essence, customers can get anything from as little as 1% back or as much as 5%, but the total amount will ultimately depend on the credit card company you’ve signed up with.
How cashback works for consumers
Consumers simply visit certain retailers which their credit card company has approved as partner merchants. These retailers can range from anything from home and travel insurance agencies to petrol stations, pharmacies, computers, and technological gadgets vendors, and even food stores, sometimes.
Once a purchase is made, the total amount of the purchase is calculated and a certain percentage is paid back to the consumer. This can be done monthly or on an annual basis.
However, there’s something important to consider at this point and that’s your level of expenditure. If you find yourself spending more just so you can get cashback, your account could suffer as you’ll need to pay off your credit on time, with accurate instalments each month. If you cannot do this, the interest charged by your credit card company will eat up any rewards that you may have accumulated.
What about merchants?
If you’re wondering about whether merchants raise their prices so that a customer can get cashback, the answer is no. The incentive or reward is provided by the card issuer to the cardholder and therefore, there’s no artificial inflation of prices once the program is implemented.
What are the pros and cons of cashback?
Although it may sound ideal, and it’s really a great way to earn while you spend, it comes with some downsides, some of which include:
- The obvious benefit of earning money for just spending ordinarily
- Some cards offer sign-up bonuses
- There are a variety of retailers you can spend at, which gives you more flexibility and choice
- In some cases, you’ll need to wait for your cashback to be released and there’s a time lag in the process
- They may charge you a higher annual percentage rate (APR) on a card with cashback than one without it
- You may be limited in how much cash you can actually earn back
It’s great to get money back for something you’d normally buy, but remember that there are some potential downsides to this, too. One includes the fact that you might get charged a higher APR on your card each year, which could even negate your earnings.
Another limitation is that there may be a cap on how much you can actually earn. Besides this, it’s always vital to pay off each monthly instalment due on your credit card account on time. Otherwise, you’ll have more interest due than cashback in your pocket, as the interest will eat into any rewards you may have earned.
While it may seem like a double-edged sword, if used responsibly, your credit card could actually help you gain back some of your cash.
Disclaimer: Please be aware that the contents of this article and the myPOS Blog, in general, should not be interpreted as legal, monetary, tax, or any other kind of professional advice. You should always seek to consult with a professional before taking action, since the particulars of your situation may materially differ from other cases.
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