Guide to Prepaid Credit Cards
What are Prepaid Credit Cards?
Prepaid credit cards look just like standard credit cards, but the way they work is completely different. As the name suggests, a normal credit card will give you a certain amount of credit, allowing you to borrow from the lender on the proviso you pay it back. This means you can spend money you don't actually have at that moment.
Instead, you will need to per-load money onto the card before you use it. Once your card is topped up with money, you can use it in the same way you would use a normal credit or debit card. So, you can use it to pay bills, shop online, buy goods in a shop or settle a bill in a bar or a restaurant, provided, of course, you have sufficient money on your card.
How do they work?
Prepaid cards are becoming increasingly common among consumers of all ages, not just with parents keen to keep an eye on their teenagers' spending habits.
The way they work is very simple. All you need to do is first find the right card for you. This type of product is issued through both the MasterCard and Visa networks, meaning not only will you have plenty of options to choose from, but these products will be widely accepted both in the UK and overseas.
Once you have chosen, applied for and received your prepaid card you will need to top it up. You will be able to do this in a number of ways. The simplest way is to do it online, either through your online banking account or through the provider's website.
Advantages of Prepaid Credit Cards
Again, prepaid cards aren't just for parents looking to keep their children's spending under control. This type of product can offer many consumers a wide range of advantages. Here are just a few reasons you may want to use a prepaid card:
- You can get a prepaid card regardless of your credit history: For many people, this is the number one reason to get a card of this type. So, while all debit and credit card providers will carry out a credit check when you apply for one of their products, prepaid card providers won't. This means that you can have a card to use instead of cash even if you have a poor credit rating. What's more, some prepaid cards are deliberately designed to help you rebuild a poor credit history.
- They're a good option if you're travelling overseas: If you don't have a credit or debit card, then prepaid cards are a safer option than carrying cash around overseas and a useful alternative to traveller's cheques. Again, even if your card is lost or stolen, the worst thing that can happen is that you will lose the amount of money that you loaded onto it, plus, if you report it in time, the card can be cancelled and a replacement sent out to you, just as is the case with traveller's cheques. Note, however, that some card providers may charge quite large sums of money for dealing with lost or stolen card enquiries and it may take a day or two for a replacement to be sent out to you, depending where in the world you are.
- Children under the age of 18 can use prepaid cards: While you need to be 18 to get a credit card and while most providers are wary of giving mainstream debit cards to anyone under the age of 16, the minimum age for having a prepaid card is just 13. This means prepaid cards are a popular choice for parents keen to teach their teenagers money management skills while also giving them the ability to spend money on the high street and online without getting into trouble.
Possible Drawbacks of Prepaid Credit Cards
Prepaid credit cards may be very easy to use and are certainly a great option if you have a poor credit rating and are unable to get any other type of card. However, if you have a good credit rating, they may not be the best option for you since they can have their drawbacks, some of which include:
- They probably won't help you credit rating: Like it or not, if you want to get a mortgage or even a car loan, then you will need to have a good credit rating. One tried and trusted way of boosting your credit rating is to make savvy use of standard credit and debit cards, with this showing lenders you can be trusted to make repayments on time. Crucially, responsible use of prepaid cards will do very little to improve your credit rating, unless, of course, you are at rock bottom, in which case they can be a useful means of getting your personal finances back on track.
- Most providers charge fees: Almost all providers will charge some fees for prepaid cards. These can include application fees, fees for topping up a card (typically a flat fee of £1 or thereabouts), fees of around 1-3 per cent for making a transaction, plus fees of up to £4 for using a card abroad. Some prepaid card providers may also impose an 'inactivity' charge. So, if you don't use a prepaid card for a year, you may have to pay a few pounds.
- Lack of Consumer protection: Perhaps the biggest drawback of prepaid cards is that, unlike credit and debit cards, you will not be protected for any losses under Section 75 of the Consumer Credit Act. This means that if you order a product online and it either gets lost in the post or fails to meet your expectations then you won't be able to get your money back like you would if you made the purchase using a credit card.
Finding the Right Prepaid Card for You
Since most providers charge fees, you should take the time to find shop around, compare products and find the right prepaid card for you. So, if you're likely to be using it on a regular basis, look out for a card which charges the lowest top-up fees. Alternatively, if you want one for a one-off trip abroad, look out for a card which charges the least amount for making transactions and withdrawals abroad.
What are 0% on Balance Transfers and Purchases Credit Cards?
This type of credit card can be considered a hybrid type of 0% on Balance Transfer and 0% on Purchases Credit Cards and is also known as an all-rounder-credit-card.
While most of the general functions are equal to those of standard credit cards, allowing you to borrow and spend money you may not have at that certain point and then paying it back over the course of several months, they offer additional introductory services to save you substantial amounts of money as they take 0% of interest on both, balance transfers and purchases.
While many credit card users tend to use different cards for balance transfers and purchases in order to avoid higher fees on either one of these services, this type of card allows you to save on both services and makes it easier to keep an eye on your spending.
How do 0% Balance Transfers and Purchases Credit Cards work?
For a set period of a time, a so called bonus period, this type of credit card allows you to consolidate some of your debt with a very low interest rate, while at the same time charging no interest rate on any purchases that you will make with your card. Many credit card users go for 0% on Balance Transfers, if they have acquired a certain amount of debt with their credit cards and pay large sums due to the high interest rate of previous providers.
Switching to a 0% on Balance Transfers Credit Card thus allows them to repay their debts throughout the introductory period and avoiding to accumulate more debts at the same time. However, the drawback of many 0% Balance Transfer cards is that very high charges apply for all other services, such as purchases. Credit card users try to avoid paying these charges by using alternative cards and card providers for their purchases.
However, with the 0% on Balance Transfers and Purchases Credit Cards, users do not need to switch providers but can benefit from the low rates on both services.
Advantages of 0% on Balance Transfers and Purchases Credit Cards?
Being generally safer than cash payments or debit card payments, your credit card purchases are always protected under the Consumer Credit Card Act 1974, ensuring that both, credit card providers and merchants, are liable for purchase values of between £100 and £30,000.
This means that in case you are buying anything faulty, substandard or a product you have ordered remains undelivered, you can reclaim your money from either the merchant or the credit card provider, whoever is more responsive to your claims.
A great benefit of the all-rounder-card is that they will not damage your credit card record by forcing you two write a large number of applications for different types of credit cards.
As they offer benefits for both, balance transfers and purchases, you can stick to one single card, which contributes to keeping a better credit record for the future. Hence if you already have a decent credit score and do not want to write too many applications, this type of card is a good option for you.
Furthermore, keeping one card prevents you from having to hassle with too many cards at a time, and also allows you to keep much better track of your finances. This is particularly valuable, as you do not have to worry about interest rates when something comes up and you need to use your credit card for a spontaneous purchase.
As these cards fulfill a multipurpose, they generally limit your overall number of credit searches, again a fact that can have a positive impact on your credit history. They furthermore only require a single credit check if you apply for an all-rounder-card once.
The all-rounder-card is not the best option for you, if your main aim is to consolidate debts or want to shift an existing debt to an account with lower interest rates. A simple 0% on Balance Transfers card might then be a better overall deal.
Secondly, if you mainly look for a card that allows you to spend money on purchases without a high interest rate, you should go for a card that specifically focuses on 0% on purchases, as they will have a better deal and are more suited for the specific requirements you may have.
Choosing the right card for you
As with any other credit card, shop around using UK Net Guide for the best deals and lowest interests, avoiding strict terms and conditions that limit you in your spending or can potentially result in fees and high charges. Make yourself aware of the specific requirements you need of your card before making your choice, do not get trapped by short-term offers but try to find those that give you the longest introductory period for both, Balance Transfers and purchases.
How 0% on Balance Transfers work
A 0% balance transfer credit card allows you to save large amounts of interest, if you are using credit cards, store cards or a current account overdraft, which charge you high interest on your current debt.
Most credit card users try to pay repay their monthly debts in full, however, many still carry over costs from one month to another, accumulating debt which is subject to high interest charges.
In order to reduce the amount of debt you accumulate, transferring a balance allows you to move all or parts of your debt to another provider with lower interest rates, to avoid such large interest payments and reduce the overall amount of your debt.
Cards with 0% on Balance Transfers hence usually offer you an introductory period, during which you are charged 0% interest on your overall sum for a set term, up to 18 or 20 months.
Switching from a card with high interest to a 0% Balance Transfer Card allows you to either pay less interest on an existing debt or consolidate multiple payments on different cards into one.
It is important to notice that credit card companies and banks are likely to charge you for making such a balance transfer, depending on the bank and the amount you want to transfer.
Drawbacks of 0% on Balance Transfers
Even though, 0% on Balance Transfer Cards allow you to save a great deal of money or the consolidation of your debts, they still tend to charge other fees for specific services, for example if you move debt between your accounts or use your credit card for purchases.
This can be problematic, as the money you put into your account will be used in order to repay your debt, while the money used for new purchases will remain on the card as debt and be charged equally at the purchase rate, which can be up to 19%.
Moreover, at the end of the fixed introductory period where you receive 0% on Balance Transfers, the charge normally drops significantly under the standard balance transfer rate you would receive with other card types, often over 15%. Hence you should use the time of the introductory phase to fully repay your debt before the rate changes, or consider moving your debt again at the end of the introductory period.
Things to bear in mind when choosing 0% on Balance Transfers
Keep in mind to pay at least the minimum payment on the credit card each month that is required, otherwise you run the risk that the provider may withdraw the introductory offer and change the 0% on balance transfers to a more expensive interest rate.
Credit card transfers are usually subject to the terms and conditions of your credit card company, which determine the size of the balance that can be transferred and whether you can transfer to another banking group at all.
It’s not worth having a savings account in today’s low interest rate environment, and rolling credit card debt from one provider to another, you may as well use your savings and clear your credit card.
How to find the best deal for 0% on Balance Transfers
The credit card market has become highly competitive, with a broad range of different offers trying outbid each other. Hence it is worthwhile to get a good overview of existing offers before you make your decision.
As mentioned before, providers offering 0% on Balance Transfers often have high charges for purchases or other services. Hence you should consider keeping the card with the lowest interest rate for the purpose of debt-consolidation, while using another card for making your purchases.
As you are specifically looking for 0% on balance transfers, try to find the provider that offers the longest introductory period, as it will allow you to get most out of the bargain.
Take into account, that there are most likely transfer fees as well as a limitation on the amount you are allowed to transfer. This amount will include the fee, so be aware that the amount you can transfer will be reduced by this amount.
Aim at clearing your debts before the end of the 0%-bonus-period, trying to minimize your overall interest, as after the period, the interest will increase drastically.
If you are not keen on moving your money around, try and check before whether the interest rate you will receive after the first couple of months is competitive with other providers. Also consider that providers can check your credit history, so it can well be that after too many switches, you will no longer be eligible for another transfer.
Some card providers may sell fraud- and theft-protection-services. As the law already protects credit card users to a certain extent, the extra cost charged for this may not be worth it. Again, if you choose to go for such as service, shop around for the best offers.
What is a Low Credit Score Credit Card?
Credit cards generally aim at allowing people who plan to make purchases but may not have the cash ready at this point in time, to borrow money and pay it back over a longer course of time.
When applying for a new credit card, issuers usually study the credit history of their clients before issuing a new card in order to see whether the client is capable of covering the monthly repayments required.
How does a Low Credit Score Credit Card work?
Due to a variety of financial or personal circumstances, some credit card users build up negative records over time, Low Credit Score Credit Cards or so-called credit builder credit cards are specifically designed for clients, who have established a negative credit card history in the past and wish to borrow money and reestablish a positive credit card record.
In most cases when credit card applications are rejected, it is because providers are unwilling to take the risk of remaining unpaid by credit card users without a proven track record of good credit. Low Credit Score Credit Cards can help to change this; they require you to make your card payments in time and keep your credit low, and in return help you to rebuild your credit card history.
With the economic crisis, banks have frequently changed their criteria for accepting new credit card clients. Low Credit Score Credit Cards help to create a more positive loan history, as already the fact that paying off a certain amount of debt each month will appear in your credit file and leave a positive trace.
Many low credit score cards offer 0% introductory periods, for example on purchases, which you can use to repay parts of or consolidate your debts.
However, due to the high risk that lenders are taking, they tend to go back to the normal rate once you miss your repayment. Furthermore, interest rates tend to be extremely high, and you are required to make at least your minimum payments each month if you do not want to risk higher interest payments and penalties.
In addition, to prevent card users to spend more money than they can potentially repay, Low Credit Score Credit Cards tend to have a lower credit limit than standard credit cards, usually starting at around £200.
However, when considering that this credit card may help improve you to reestablish a god credit card history, it may be sensible to accept a higher annual percentage rate (APR) as a tradeoff. Some credit card issuers may also offer additional services, such as free text and email-alerts, which assist you in keeping better track of your spending and making all necessary repayments in due time.
Top tips before applying for Low Credit Score Credit Cards
With any credit card the rule applies that you should keep your debts to a minimum and only spend as much as you can realistically repay. This also means, keeping not just your minimum of monthly repayments, but trying to repay every month in full if that is feasible in order to avoid paying interest and increasing the debts you have accumulated. Other things to bear in mind include:
- Be aware that Low Credit Score Credit Cards are expensive and you are often charged huge fines for exceeding your limit. If you have struggled repaying your credit card bills in the past, getting an additional one might not be the best solution.
- Do not risk making any further debts by signing up for a credit card that you cannot potentially afford. Going for Low Credit Score Credit Cards means that you are attempting to reestablish a positive credit history, so choose a card with terms and conditions that are suitable for you and help you to reduce current debts.
- Make a budget plan along with your Low Credit Score Credit Cards to keep better track of your spending. Paying your credit card bills regularly and in time over an extended period of time is a major contribution to rebuilding your credit history without much additional effort. This also entails checking your credit score regularly, to stay aware of possible changes.
- Consider cards that offer 0% periods and try to repay your debt within the specified term. This way you avoid accumulating debt while you buy yourself a certain amount of time during which you can acquire money to make your repayments. However, be aware that interest rates will go up drastically at the end of the introductory period.
- Only stick to cards that obey the lending code, which is a code of practice and protects you as a consumer by law.
What is a Low Standard Rate Credit Card?
Low Standard Rate Credit Cards generally offer the same services as conventional credit cards, allowing you to borrow an amount of money flexibly and conveniently and then paying it back at a later point in time that suits you better.
As a general rule for credit card payments, you have to cover monthly minimum payments, if you do not choose to make full repayments, the rest will be added to your outstanding balance along with the interest rate that you pay.
With the credit card market having become more and more competitive, interest rates have been going up with many providers, who have tried to attract new clients with fairly low standard rates for an introductory period.
Behind this background, credit cards with permanently low standard rates have become fairly rare, but they are highly beneficial as they allow you to take money out for purchases while accumulating only relatively small amounts of debt.
Unlike common 0% introductory offers, which are convenient for a predetermined low-interest introductory period but then become less appealing when interests go up, Low Standard Credit Cards tend to offer better deals.
Advantages of a Low Standard Rate Credit Card
Getting a card with a low standard rate is usually advantageous, as you as a credit card holder are generally advised to always identify the card offers with the lowest rates to avoid paying unnecessarily high interest rates. Low Standard Rate Credit Cards furthermore have the advantage that you can stick with the same credit card for longer, instead of constantly having to switch from one 0%-deal to another, once they are expired.
This is particularly beneficial for your credit history, as frequently switching your provider has a negative impact on your history and can make it more difficult in the future to apply for loans or new credit card deals with other card providers. It also helps you to avoid balance switching fees if you stick with a low standard rate credit card for a long time, as many card providers charge you for balance transfers and similar services.
Many credit card users who have acquired larger amounts of debts choose to pay off their debts by making temporary balance transfers to card providers with introductory terms of 0% interest. A better option is to choose and stick with a low standard rate card, offering much lower rates than other providers and hence allowing you to reduce your debts much quicker. Some do not even require you to pay a transfer fee for sending your balance over.
This type of credit card is particularly good for clients who always repay their credit card debts in full, but sometimes tend to overdraw a little and then want to avoid horrendous interest rates.
Drawbacks of a Low Standard Rate Credit Card
Card issuers often have predetermined criteria, upon which they choose their clients. Hence you cannot always be sure that you will be allowed to easily switch to a provider with a Low Standard Rate Credit Card, as in order to be eligible for a Low Standard Rate Credit Card, clients usually need to have an excellent credit rating. This means that your application may be refused or you will receive a higher rate than initially advertised as a result of a weak credit history.
How to find the best Low Standard Rate Credit Card for you
Even though you aim at finding the lowest standard rates when shopping around for this type of credit card, always check the fees that apply on all other credit card services, such as funds transfers and purchases. Take into consideration to keep separate cards in order to use other cards for purchases that offer better interest rates.
Before you consider an application, check your own credit record. Some providers only accept clients with excellent credit records, so if you do your research properly and do not fit the requirements, you can avoid making unnecessary applications that might affect your credit history.
Watch out for annual fees put in place by the credit card providers. Sometimes paying a high annual fee does not cover for the benefits you have from using Low Standard Credit Cards.
If you tend to pay back your credit card balance in full every month, you are not strongly affected by the rates of your credit card, as you are usually not paying much interest. In this case, cashback or other types or reward cards might be an interesting option for you.
How 0% on Purchases Credit Cards work
If you want to make a bigger purchase and cannot afford to pay for it all at once, a credit card is an ideal way of getting what you want. Like standard credit cards, credit card services with 0% on purchases allow you to spend a certain amount that you may not have at this very moment, in order to repay it at a later point in time.
In addition, 0% on Purchases Credit Cards do not charge you interest when using your credit cards for purchases, usually for a set amount of time. This means that as long as you stick to purchase transactions, and the terms and conditions of your offer, making your minimum repayments and staying within your credit limit, there will not be any interest charges on the set term of your 0% offer.
While for some credit cards, 0% on purchases includes all potential purchases you could make with your card, others are specialised for certain product types, including for supermarkets or other retailers, holidays, or for petrol. Usually 0% on Purchase Credit Cards work for both online purchases, or purchases made directly in shops.
In most cases, you are granted up to around 59 days before you need to pay your credit card bill, allowing you to pay in full in order to avoid interest charges.
How safe are 0% on Purchases Credit Cards?
In terms of safety, your credit card purchases are always better protected than purchases with cash or debit cards, namely under the Consumer Credit Card Act 1974, ensuring that both, credit card providers and merchants are liable between purchase values of between £100 and £30,000.
This means that in case you are buying anything faulty, substandard or a product you have ordered remains undelivered, you can reclaim your money from either the merchant or the credit card provider, whoever is more responsive to your claims.
Possible drawbacks of 0% on Purchases Credit Cards
As with all credit cards, using this service is a form of borrowing money and you need to keep track of your expenses. So keep in mind that at some point, the 0% on Purchases-period will come to an end and you will be charged. It is always worthwhile to establish a repayment plan for this period of time.
0% cards are usually beneficial until the introductory phase expires. It is advised to clear your balance before the end of this time period to make full use of the interest-free spending.
After this, you need to find out your new interest rate, which can be 19% or higher, and consider if it is still worthwhile to stick with your current provider or whether you can get better deals somewhere else. When considering to switch, always remember that too many switches can be visible on your credit card record, and that future providers may not accept your application as a result.
As with most credit cards that have special offers, credit card services outside of the offer tend to be price traps. When choosing a card, check before whether there are high fees on money transfers and cash withdrawals. Based on this information, you should either choose the best deals or use other cards if you are planning to make use of such services. Generally it is a good advice to not withdraw cash with your credit card, as you will always be charged a fee for this service, typically about 2% of the sum you withdraw.
Top Tips for choosing 0% on Purchases Credit Cards
Like with choosing any other type of credit card, always shop around for the best deals that are suitable for your own spending habits, especially if you intend to make certain purchases. Try not to limit yourself with a credit card that only offer 0% on specific purchases, if you do not intend to use those exclusively and to the fullest.
If you tend to pay back your monthly debts in full, 0% deals do not make much of a difference to you, as you are not strongly affected by interest payments.
Many credit cards offer an interest free “grace free” period on purchases you make, usually about 30 days, during which you can repay your purchases, also if you do not have a 0% on Purchases Card.
Always watch out for any additional hidden fees that might be included in your credit card contract. This includes a fee charged if you miss your monthly payments or if you exceed your credit card limit.
What are Reward Cards?
Reward cards are extended types of standard credit cards, which were developed on the premise that credit card users demand additional rewards for using credit card services.
Due to the additional rewards they offer, reward cards tend to carry higher interest than standard credit cards. The service they provide requires you to spend money with your credit card, and in return you are rewarded in multiple different ways. Some card providers will offer up to £100 worth of goodies each year.
How Reward Cards work
Reward Cards generally tend to offer different types of reward-schemes; ranging from flights, electronic devices or holiday packages to point schemes, where you collect a certain amount of points for each purchase you make with your reward card and then exchange them for goodies or gift vouchers.
Some reward cards also offer cashback, which means that you earn money every time you spend money with your card, and usually receive this reward as a lump sum at the end of the year. Unlike with many reward schemes that have complex point systems that are not always clearly explained, the cashback-option allows you to keep track of the exact amount that you earn and you can moreover choose for yourself how you would like to spend your reward-money.
Different types of reward cards are tailored to fulfill the needs of different consumer groups. There are offers such as airline miles cards which are suitable for frequent air travelers, as they enable you to accumulate bonus-miles whenever you book a flight. These can then be converted into flight-discounts or entire flight-bookings. Another type is the so called gas rewards card, giving you discount on the gas you buy with your reward card. This is specifically interesting for commuters or frequent drivers with high gas expenditures.
A third type are balance transfer cards, offering a 0% APR for 6 to 12 months after a balance transfer. This is useful if you have a larger amount of debts and aim at paying them back within the 0% time period. Finally, cash-lite schemes are a hybrid form between reward and cashback cards, where the money you earn can only be converted into gift vouchers or spent in specific stores.
Drawbacks of Reward Cards
The best offers of Reward Cards are frequently saved for people with the highest credit scores. Hence, reward cards are not rewarding for all users alike.
Providers of Reward Cards have to make profit, they hardly ever offer rewards for return for nothing. Take into account that some Reward Cards carry high interest rates up to 15%, justifying this with the benefits of offering rewards. If you do not pay attention, you risk paying more in interest than you get back in rewards.
Some of the reward schemes use consumer traps and trick you with complicated point-schemes, where the points you collect are practically worth nothing. Make sure that the rewards offered are in direct proportion to your financial efforts and that you can easily oversee how your points are converted into actual rewards.
Finding the right Reward Card for you
In many cases, reward cards are not tailored for individual consumers, but for broader groups of users. So it is up to you to find the card that is most suitable for your needs and demands. When making the decision which card to choose from, you should weigh all rewards formulas and restrictions against each other. Also evaluate your own spending habits in order to understand, which offers are most rewarding for you. You should also consider:
- If you choose to get a Reward Card, make sure you set up a direct debit to always repay your card debts in full, avoiding high interest rates, as in most cases they are not worth the returns you receive through rewards.
- Watch out for annual fees, they are generally rare and hence should be entirely avoided if possible. This additional cost is hardly ever fully covered by extra rewards offered by the card provider.
- Some credit card providers offer freebies just for signing up for a credit card. Generally there is nothing wrong with looking for and taking such extra rewards into account, but do not let them distract you from details in the actual contract you are entering, such as the interest rate and conditions of the reward scheme.
- If you are not sure whether you are able to repay your credit card debts in full every month, you should consider looking for a credit card with a low interest rate instead.
- If you have existing credit card debts, it is furthermore worthwhile considering another card type or reducing them or making them cheap before choosing to get a reward card.
What are Cashback Cards?
Cashback Cards evolved from the concept of standard credit cards, allowing you to borrow a certain amount of money that you do not own at that specific moment and pay that back, usually within one month.
Similar to Reward Cards, Cashback-Cards are based on the premise that credit card users enjoy receiving cash rewards for using credit card services.
How do Cashback Cards work?
Quite simply, clients profit from their own spending as cashback-schemes offer the chance of earning cash every time you spend money with your credit card. Receiving cash back as a reward, you know in advance how much you will receive when you use your credit card and have the authority to decide how you want to spend your financial reward. In many cases the cashback amount is tied to the amount that you spend with your card, often up to 5%.
Many providers start with high cashback rates in the first few months, which then drop later on.
Usually, the cashback that is earned in this process accumulates and is either credited to your account or you will receive a cheque for the amount that you have accumulated.
To take full advantage of this, it is advisable to use cashback cards for all normal spending. Some card providers offer different cashback rates for different types of spending, giving you different percentages for supermarkets, petrol stations of retail stores.
Consider your own spending habits and monthly expenses before you pick a specific card type and provider.
In addition, it is a golden rule to always do the monthly repayment in full, most conveniently by setting up a direct-debit in order to avoid paying high interest.
Cashback credit cards make most of their money with interests, so avoid to be trapped by these.
A hybrid type of cashback and reward card is the cash-lite card, where you convert the money that you own into gift vouchers or can only spend it in specific stores, thus restricting the amount of choices you have what spend your money on.
Advantages of Cashback Cards
With many other reward-cards, which offer point schemes or other types of schemes, it is difficult to oversee your overall benefits and compare with other providers. With cash-back-cards, this comparability is much more feasible and transparent as you know the percentage that you will receive on all your spending.
The Drawbacks of Cashback Cards
With any other credit card, cashback-cards require a monthly repayment. Especially if you already have credit card debts or if you are temporarily unable to fulfill this repayment in full each month, a lower interest rate credit card is more suitable. This also requires you to keep track of your monthly expenditures.
Cashback Cards often have high fees on cash withdrawal in addition to high interest rates. When owning a Cashback Card, try to avoid cash withdrawals entirely if possible. The same applies for balance transfers, as you are likely to pay a fee and use up your credit limit.
In case you already have debts, Cash-Back Cards are not advisable, as they tend to have higher interest rates. Hence you should attempt to keep your existing debts cheap rather than going for a cashback-option.
Finding the best Cashback-Card for you
When shopping around for the best offers, bear in mind that cards with higher cash-back offers also tend to charge higher annual fees. The rate of cashback offered on regular purchases should always be taken into account when making your choice, but you should also consider possible caps and introductory offers that expire sooner or later.
Take into account that a good cashback card has at least a 1% cashback rate after the introductory bonus phase and should not have a cap on the amount of money you can potentially earn from cashback.
Also be aware that there are cards which require a yearly minimum spent before you qualify for your cashback.
Some card providers might also promote cashback, but paying the “cashback” only in the form of vouchers, thus being similar to reward cards. Consider if you want such a deal and whether you are going to make sufficient use of this option before you select your card.
You also need to consider whether you are looking at short- or long term benefits as well as whether you are interested in Visa/Mastercards or products from other providers, as you may not be offered them if you already have a credit limit in use with this kind of card.