4 ms·

Honestly, it's not even that great for you. For starters, you're basically giving your credit card company a free loan. If given a choice between paying 100% a

Honestly, it's not even that great for you. For starters, you're basically giving your credit card company a free loan. If given a choice between paying 100% and being done, or paying 105% and getting the 5% back later, almost no one would chose the 105% option. (I know it doesn't actually work this way, but it's still a good illustration.) Additionally, that program necessarily adds some cost, which is just rolled into higher prices that you (and everyone else) pay. All that said, I completely agree with your point. I wish credit card reward schemes would just go away.

ubercow13 6y ago
On average the credit card company is the one giving you the free loan.
- nfriedly 6y ago
  I guess you're both giving each other loans, but even if you pay your bill in full each month, yours still isn't free. If you're getting 5% back, then the item was almost certainly marked up more than 5%. So you're still paying something for that loan in the form of higher up-front pricing. And, of course, if you don't pay your bill in full each month, then you're likely looking at 15-20% or more (APR) on whatever balance you left unpaid.
  - mehrdadn 6y ago
    > If you're getting 5% back, then the item was almost certainly marked up more than 5%. How though? The 5% back is not a rebate coming from the merchant, it's coming from the card issuer. Don't they (generally -- barring special agreements for specific cards) get the same amount of money regardless of what cards people use?
    - nfriedly 6y ago
      When I ran a business that accepted credit cards, I had to pay different levels of fees depending on the type of card and rewards scheme associated with it. I had to set my prices based on the highest rewards card fees, and if someone paid with a lower fee card, I just kept the difference as extra profit. (My agreement with the CC processor explicitly required me to give everyone the same price regardless of how they paid.) I think 5% is a special case that's limited to specific vendors or products, I'm not aware of any general rebate higher than 2%. I know Stripe and Square and other companies have come along now that charge the same fees regardless of the type of card - but note that they're all above 2%. I think the only difference now is that Stripe/Square/etc. keep the difference as profit when someone pays with a non-rewards card, instead of the vendor. (But, in their defense, they're able to negotiate lower rates than I was ever able to get on my own.)
taftster 6y ago
This is a good point. But realistically, that choice is not an option. Therefore, I'm at a disadvantage if I don't use the most "rewardy" type of card available. The cost of these points/rewards are priced in. So the only way to recapture that is to use a high reward card. It's a sucky model, but we're all caught in it and the folks paying with alternatives like cash are the ones holding the bag.
- lixtra 6y ago
  If the item is expensive enough you can also negotiate a discount for not paying by credit card.
  - ryandrake 6y ago
    Isn’t this against the merchant agreements between them and the credit card companies? If it was allowed, wouldn’t you see separate cash and credit prices all over the place?
    - edoceo 6y ago
      I see those. Dentist, Gas, Pub. My dentist is 10% off for cash. Gas I bought last week in New Hampshire, $0.07 cheaper with cash. Pub has a minimum and sur-charge for card. And my coffee place too. But, online, eg PayPal, has the same-price rule.

ubercow13 6y ago

On average the credit card company is the one giving you the free loan.

nfriedly 6y ago
I guess you're both giving each other loans, but even if you pay your bill in full each month, yours still isn't free. If you're getting 5% back, then the item was almost certainly marked up more than 5%. So you're still paying something for that loan in the form of higher up-front pricing. And, of course, if you don't pay your bill in full each month, then you're likely looking at 15-20% or more (APR) on whatever balance you left unpaid.
- mehrdadn 6y ago
  > If you're getting 5% back, then the item was almost certainly marked up more than 5%. How though? The 5% back is not a rebate coming from the merchant, it's coming from the card issuer. Don't they (generally -- barring special agreements for specific cards) get the same amount of money regardless of what cards people use?
  - nfriedly 6y ago
    When I ran a business that accepted credit cards, I had to pay different levels of fees depending on the type of card and rewards scheme associated with it. I had to set my prices based on the highest rewards card fees, and if someone paid with a lower fee card, I just kept the difference as extra profit. (My agreement with the CC processor explicitly required me to give everyone the same price regardless of how they paid.) I think 5% is a special case that's limited to specific vendors or products, I'm not aware of any general rebate higher than 2%. I know Stripe and Square and other companies have come along now that charge the same fees regardless of the type of card - but note that they're all above 2%. I think the only difference now is that Stripe/Square/etc. keep the difference as profit when someone pays with a non-rewards card, instead of the vendor. (But, in their defense, they're able to negotiate lower rates than I was ever able to get on my own.)

taftster 6y ago

This is a good point. But realistically, that choice is not an option. Therefore, I'm at a disadvantage if I don't use the most "rewardy" type of card available. The cost of these points/rewards are priced in. So the only way to recapture that is to use a high reward card. It's a sucky model, but we're all caught in it and the folks paying with alternatives like cash are the ones holding the bag.

lixtra 6y ago
If the item is expensive enough you can also negotiate a discount for not paying by credit card.
- ryandrake 6y ago
  Isn’t this against the merchant agreements between them and the credit card companies? If it was allowed, wouldn’t you see separate cash and credit prices all over the place?
  - edoceo 6y ago
    I see those. Dentist, Gas, Pub. My dentist is 10% off for cash. Gas I bought last week in New Hampshire, $0.07 cheaper with cash. Pub has a minimum and sur-charge for card. And my coffee place too. But, online, eg PayPal, has the same-price rule.