Understanding Credit Card Rewards, All they all good?

You can use a rewards credit card to get valuable miles, points or cash back on all your purchases, and additional perks or benefits for being a cardholder. However, rewards cards also tend to have higher interest rates than non-rewards cards, and the incentives could lead some people to spend more than they would otherwise. Learning about the different types of rewards cards, as well as the benefits and the drawbacks, could help you decide if a rewards card is worth it for you. 

What are credit card points? 

Credit card rewards come in three varieties: cash back, miles, and points. You will receive a fixed rate per rupee spent with each type. Cash back systems, for example, give you a portion of your purchase back in money — for example, a 2% cash back card would give you 2 paisa back on every rupee spent. Credit card point systems, rather than money, reward you in the form of points for your expenditure. For example, you could get 2X points per rupee spent on certain purchases. 

However, the rate at which you earn points may vary based on the sort of purchase you make. Some credit card companies charge a flat rate for all purchases, while others charge a higher rate for specific purchases (sometimes known as “bonus categories”).  

Travel credit cards, for example, typically provide more points (or miles) for travel-related spending. A top travel rewards credit card may provide 5X points per amount spent on approved travel-related expenditures (such as flights or rideshares) and 1X points per amount spent on all other transactions. 

What Are Credit Card Rewards? Why Do We Get Them? 

Almost every credit card available offers various credit card rewards for use, such as points, miles, cashback, discounts, and so on. These incentives are designed to entice you to spend more on your credit card rather than cash.  

The reason for this is straightforward: banks (or NBFCs) want you to develop the habit of charging all of your spending to your credit card. Banks profit from this by charging you interest if you pay your credit card bill late or convert a credit card expense into an EMI.  

However, if you are disciplined enough to never miss a payment or overspend on your credit card, you should be able to enjoy the benefits without fear of penalties.  

How to Compare Rewards Credit Cards 

Here are some crucial qualities to look for while looking for a rewards credit card.  

  1. Annual fees: Some cards charge you a yearly fee. When you pick one, think about whether the benefits you’ll get throughout the year outweigh that fee. If you’re not a big spender, a hefty annual fee could eat up your rewards. 
  1. Interest rates: Many rewards cards offer a 0% APR for the first year, but watch out because after that, they hit you with interest charges. If you don’t pay off your balance in full every month, these charges can add up fast.  
  1. Tiered vs. fixed rewards: Some cards offer different rewards for different types of purchases, while others give the same reward for everything. Choose the one that fits your spending habits.  
  1. Cashback caps: Cards that offer cashback usually limit how much you can earn in specific spending categories. So, pay attention to these caps. 

Cons of a Rewards Credit Card 

Although the benefits can make opening and using a rewards card worthwhile, you should also examine the potential negatives.  

A high interest rate is possible.  

Rewards credit cards often have a higher annual percentage rate (APR) than non-rewards credit cards. If you pay off your debt in full each month, you can avoid paying interest on your purchases. Carrying a balance, on the other hand, will be more expensive, and a low-interest credit card may be a better option. 

Good credit is required.  

The best rewards cards typically demand good to excellent credit scores and are not suitable for everyone. There are rewards cards that simply require weak or fair credit, but they often provide lower rewards rates and fewer advantages. You might, however, utilise one of these to help develop your credit before applying for a premium card when you’re ready.  

Could Result in Excessive Spending  

Earning rewards can make it easier to rationalise a purchase, while overspending can result in cycling a balance and incurring interest. If you are prone to obsessive purchasing or overuse of credit cards, it may be wise to avoid rewards cards—or credit cards entirely. 

Summing It Up 

A rewards credit card can be a pretty nifty addition to your financial toolkit if you have a solid credit score and the rewards align with your lifestyle. Just remember not to go overboard, and you’ll be on your way to unlocking some sweet perks while staying financially savvy. Happy swiping! 



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