When It Is Worth Having Cobranded Credit Cards In Your Wallet

There are multiple cobranded credit cards available in India, and their coverage is increasing across different areas.

Airlines, department stores, hotels, and multiplexes are some of the areas where you will find companies that have tied up with banks to offer such cards to their users and the banks customers. This might even seem overwhelming for a lot of people, as they do not know how and when they should select such a card or if they should have one at all.

Here are some factors to consider when determining whether you need a cobranded card or not.

Cobranded cards, as the name suggests, are credit cards that have two participating entities for the various benefits offered.

Normally, there is just one entity involved in a credit card, which is the issuing bank.  However, in the case of a cobranded credit card, the bank and some other entity have a tie-up and the card is issued with the branding of these two entities.

There are some special features and benefits that arise either when amounts are spent at the participating entity or at the time of redemption of points accumulated on the card, and hence this becomes an attractive proposition for the consumer.

The card will be beneficial only if the individual is normally spending money at the specific place or entity offering the card. This will ensure that the benefits that come along with the credit card are actually utilised.

For example, if a person does not shop at a specific store or if they do not travel frequently by air then using a credit card that gives you benefits at these places is not going to be a beneficial move.

The first thing to see is whether the benefits offered by the cobranded credit card are going to be used in the normal course of events. Once this is established, the other factors have to be considered.

There is a need to look at the amount that has to be spent in order to get the benefits under the credit card.  Sometimes there are extra points given for using the card.

For example, there might be four points given for every Rs 100 spent at a particular store instead of the normal two points. In other cases, there might be a discount only when spending is above a certain limit. This needs a careful look because if the amount is very high, this would actually require an additional spend by the individual taking the card.

This is not a wise move because it imposes an extra burden on the cardholders that is not present at the moment, stretching their finances.

A similar thing might happen at the time of redemption of the points on the card. If redeeming the existing points will require an additional amount to be spent, then this is once again forcing the cardholder to make extra spending, which is not suitable.

In many cases, an individual who is already spending money using an existing credit card would move this to a new cobranded card. This shift has to be considered on two fronts.

On one side, the impact of moving the spend away from an existing card, where some benefits are being lost due to the change, and on the other are the benefits that now appear with the new card.

The question is whether the new cobranded card benefits are more than what is being sacrificed. This factor is never considered because all cardholders see is the new benefit. In many cases, the net impact is such that the usage of the card does not make sense on the financial front

The most important factor that has to be taken into consideration is the expense that the individual will incur during the entire exercise.

One could be the annual fees that are charged by the cobranded card, and this could be a sizeable amount, especially if the benefits are high.

In addition, the requirement of minimum spending as well as the administrative work of having a new card and managing it along with the existing ones all impose a cost. The lower the cost, the better it is, and this factor also needs to be considered.

Arnav Pandya is founder Moneyeduschool

The views expressed here are those of the author, and do not necessarily represent the views of BQ Prime or its editorial team.