Credit cards with cash rebate sound very promising as a credit tool because it means like earning rewards in the form of cash and not just points. Actually receiving cash incentives for your credit purchases are like lucrative investment buying on the surface. However, if you will really delve deeper into the mechanics of credit cards with cash rebate, you are only being encouraged to buy more.
When considering credit cards with cash rebate you should make note of the APRs that they charge after the 0% introductory offer. It is important that the Annual Percentage Rate (APR) are not too far from the prime interest rates for clean loans. This would mean your credit purchases are being charged with reasonable APR for interests. If your credit card with cash rebate has an APR way too far from the index for clean loans, it means your cash rebate are mere refunds of the high interest costs you paid for your credit purchases.
The credit card company hits you with high interest rates on your credit purchases which made use of credit cards with cash rebate. In fact, the manner by which your payments are applied is something you should also be aware of. If you are to pay the minimum amount required, your payment will only satisfy the interest portion of your credit cards with cash rebate purchases. Hence, a great part of your credit obligation is still represented by the principal amount and still earning interests for as long as it is carried in your account as an outstanding balance.
Since you will be entitled to some cash rebate for a particular purchase, you will earn a one-time refund on interests paid for. However, since your minimum payments only reduced the interest portion of your outstanding balance, the credit purchase made using credit cards with cash rebates is still earning the high APR costs on your account. This time you are no longer entitled to a rebate because, there is no direct reference to the fact that what is being refunded to you are interests added to your purchases.
Nevertheless, these are things that are not taught to you in school nor divulged to you by credit card companies but which you should analyze through research. What they will teach you in school is that in financing, all payments should first be applied to satisfy the interest and other charges before using it to reduce the principal. Hence, that is basically the same thing with credit cards including credit cards with cash rebate. The higher their APRs the higher the amount of interest your minimum payment has to satisfy. Little or almost nothing is left to reduce the amount of your principal credit balance.
That is the reason why cardholders are often encouraged to pay more than the minimum required payment on their credit cards including credit cards with cash rebate. If you know you made a large amount of credit purchase, try to settle every purchase in the shortest time possible to lessen the APR interests that eats into your monthly payment. Credit cards with cash rebates are great for as long as you’re not going to pay for higher APRs, this is something you should look carefully into.