For first time customers, choosing a credit card can be a very daunting prospect. Try to navigate your way through the online system of offers and rewards and you’re likely to become confused by a multitude of cards offering different services and benefits. In a market saturated with opportunities to borrow money quickly, credit card companies have been devising new ways to hook prospective customers, with the latest cards offering cash incentives, meaning you earn money each time you make a purchase.
One example of this offer is the Aspire® World card from Capital One, which offers 5% cash back on all purchases made within the first 3 months, but with a cap of £100. To get the maximum amount of cash back, you would have to spend £2,000 in three months, but the interest rate attached to the card means you may end up having to pay back six times the amount you receive from the cash back scheme anyway.
Although the percentage is quite high, it’s worth keeping in mind that it’s for a limited time only – after the initial three months, the cash back rate drops to a mere 0.5% on all subsequent purchases. It’s not an immediate incentive either – accumulated cash is paid back into the account every January, meaning consumers could be waiting up to a year to see any money and there is always a high possibility that any cash back earned will simply be used to pay off incurred charges or interest.
Customers who pay off their monthly bills in full and on time, however, could benefit from this type of offer, as they tend to avoid the higher interest rates and additional charges.
The problem with these short term cash injections, whether they are from credit cards or loan advertisements on the television, is that people tend to forget that they eventually have to pay back more than they’ve borrowed, which begs the question: if you don’t have enough money now, how sure are you that you’ll have it in the future?
These days, it takes longer to heat up a Rustlers burger in the microwave than to apply for a credit card online, so it’s essential to think logically about what the card offers and how it will benefit you in the long run. If you are fairly sure that you’ll able to pay back the monthly sum, a card with a cash incentive could be a good option for you.
However, consumers influenced by the prospect of receiving a cash bonus without thinking further down the line may end up shocked with the results, particularly if they’ve never really dabbled with debt before. Though the lenders appear to be doing you a favour, most of these incentives are generally in their best interests, so just remember, by the time you’re credit card savvy, you may have already racked up masses of debt, so what good is £200 at the end of the year if it’s just going to go back into the bank’s coffers?
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|Jemma is a news & research reporter for compareandsave.com.Having worked as a journalist on a number of personal finance websites; she now spends time researching and commenting on UK personal finance stories and investigating new ways to help our readers save money.For press enquiries, please visit our Media Centre page.|