Credit cards: How are rewards programs different from loyalty programs? | Mint

If you are new to the credit card universe, it is important for you to know that one of the key incentives for most users while applying for a credit card is to avail credit card rewards program. For those who are unaware, credit card rewards programs are incentives offered by the issuers i.e., banks to encourage cardholders to use their cards more often that they do.

These programs typically reward users for each purchase by offering them points, cash back, or miles that can be redeemed for a slew of rewards.

These are some of the types of credit card rewards programs:

I. Cashback rewards: These cards give a percentage of each purchase back as cash. For example, a credit card might offer 1 percent cash back on every purchase or on specific categories such as dining or travel. Some cards also provide bonus cash back in rotating categories, which change every quarter.

II. Points-Based rewards: With points-based programs, cardholders earn points for each rupee spent. These points can be redeemed for a range of options such as gift cards, travel expenses and merchandise. Some programs join hands with a specific retailer (s) or service providers to offer extra points when shopping at those locations.

III. Travel Rewards: Travel rewards cards often offer miles instead of points. Miles can be used to book flights, hotel stays, rental cars, or other travel-related expenses.

Some travel cards are co-branded with airlines or hotels and offer bonus rewards for purchases made with those partners, plus perks like free checked bags, priority boarding, or access to airport lounges.

IV. Retail rewards: These cards are often offered by specific stores or brands (such as Amazon). They provide rewards tailored to that brand, such as discounts or additional rewards when you shop with them. They may include special financing offers or unique perks at the store or retailer.

Tips for using rewards credit cards

If you are using a rewards credit card, make sure you clear your credit card bills in entirety. Carrying a balance can incur interest charges that offset the value of the rewards. Also, you should be aware of the annual fees that these cards carry.

Therefore, you should make sure the rewards you earn exceed the fee. Also, you should be mindful of expiration. The points or miles can expire, so it’s good to redeem them on a regular basis. Using a rewards card strategically, especially with expenses you already have, can be a great way to earn extra value.

How is a rewards program different from loyalty program?

Source of rewards: Unlike rewards program, loyalty programs are created by specific retailers, brands, or service providers such as airlines and hotels grocery stores). Points are earned only on purchases made with that particular brand.

Restrictions in redemption: Points earned on loyalty programs are typically confined to the products or services from the specific brand. For example, a hotel loyalty program may allow you to redeem points only for hotel stays, upgrades, or experiences related to that chain.

Types of rewards: In a loyalty program, rewards are typically tailored to the brand’s products such as free flights, hotel nights, exclusive products, or discounts. Points may also lead to tiered perks such as free upgrades or access to exclusive experiences.

To sum up, credit card rewards programs offer rewards across various brands and purchases, whereas loyalty programs are restricted to specific brand(s) and focus on rewarding loyal customers with targeted perks.

Some card users use both types of programs together in order to derive maximum benefit.