Pros and Cons of Rebate Credit Cards

With so many and varied credit card offers available, making a choice can be difficult. There are a wide assortment of card types now—including rebate credit cards; rewards credit cards, including travel, merchandise, gift certificates, etc.; student cards; small business cards; and more. And within each of these types, there are hundreds of offers that change, sometimes daily. One way to start the search for a credit card is to consider the pros and cons of each type of card in which you might be interested, as this article does with rebate credit cards.

Pros of Rebate Credit Cards

Rebate credit cards, also known as cash back cards. Here are a list of the pros:

  • You are rewarded in cash – either sent to you periodically in a check or applied against your account balance, also periodically.
  • Once you settle on a card, you may be able to stop carrying checks and making sure you have sufficient cash before you go shopping unless you plan to spend less than the $5 or $10 minimum that some merchants have for credit card use.
  • Even after finding the best sale price on large purchases you want to make (like televisions, computers, and appliances), you can possibly save even more, simply by making the purchase with your credit card.
  • If you have reached the limit of how you can reduce grocery costs by using club stores, buying in bulk, shopping for sales, buying store brands, and using coupons, a rebate credit card allows you to save still more.
  • With cards that offer a higher rate of rebate for so-called “everyday purchases”—shopping done at the supermarket, drug store, and gas station—you may not have to make any large purchases to have the card work for you, aiding you in living frugally, if that’s your choice.
  • Rebate cards tend to offer low bank transfer APR’s, and if you pay off the transfer within the grace period, this can be a useful way to pay-down another card balance, especially a higher interest one.
  • If you typically charge a large amount (over $10,000 per year) on your credit card, a tiered program can help you earn even more.

So, What Are the Cons?

The pros are never the whole story. Here’s the other side of the picture:

  • Rebate cards tend to have a higher annual percentage rate (APR) than other cards, and carrying any balance will quickly reduce the value of the card, as the percentage will outweigh the rebate. Simply put, cash back cards only work really well for those who never carry a balance.
  • Any annual fee will reduce the value of your savings.
  • Reward caps can limit your rebate amount. Check the terms and conditions for such limitations.
  • You may be bound to particular merchants because of limitations on the rewards.
  • You may be encouraged to make purchases that you would otherwise not have made.
  • A high percentage card may in fact only offer that percentage for a limited time. If there is an introductory period followed by drop in rates, you may still benefit from the card overall and be able to plan your major purchases for the introductory period (provided you can pay off the charges during the grace period).
  • The credit card issuer can change the terms and conditions at any time. Changes to look for include: the card’s APR, the card’s fee, the percentage of rebate, the list of merchants from which purchases are counted towards rebates, the length of the grace period, or even removing the rebate incentive completely. This means you must stay abreast of the terms and the changes to use the card to best advantage, and that the good times may not last.
  • There may be a set amount you have to earn before receiving a payback.
  • Even if the card has a broad acceptance, not every card is accepted everywhere, in which case you may end up with not as good a deal as it appeared.
  • ATM and other cash back uses of rebate cards are not rewarded with cash back and typically do not have an interest-free grace period, so interest will be charged from the day of the transaction.