The use of co-branded credit cards has really gained momentum in the last few years because of some additional benefits they come with. As per the Forbes survey (Feb 2023), only 9% of Americans are using cash for transactions, debt cards hold 49% weightage and credit cards account for 36% of transactions. Businesses are now actively collaborating with credit card companies to offer some extra benefits in order to attract repeated purchases and customer acquisition. In this article, we will see how co-branded credit cards work and how we can we use them effectively.
How do co-branded credit cards work?
From the customer’s point of view, co-branded credit cards work exactly the same as normal credit cards which can be used anywhere. However, they offer certain extra benefits for using them for purchases from a particular merchant. Actually, new businesses or competitive businesses collaborate with credit card companies like American Express, Mastercard, etc. to acquire new customers and hold existing ones. Co-branded credit cards are more common businesses that prompt repeated customers like travel, hotels, etc.
Benefits of co-branded credit cards
Loyalty points
If you are frequent and a loyal customer of a particular retail store, cab service, hotel chain, or airline then using their co-branded credit card can significantly increase your savings. Loyalty point is a very common concept in credit cards. Suppose you make a purchase of $1000 on which you get 10 loyalty points worth $10 which can be redeemed on the next shopping. Thus, you get a discount of 1%. Had you made this purchase from a general credit card reward may be lesser or sometimes nothing. Thus, to get maximum out of co-branded credit cards you must be able to envisage how frequently and how many times you are going to use the services of that particular brand.
Joining bonuses
You can easily expect joining bonuses ranging from $150 to $200. But joining bonus is a clever marketing trick. You should select co-branded credit cards based on their need and operational benefits.
Extra perks
Different brands offer different perks varying from premium services, to higher discounts. Other perks may include lounge access, free meals, discounts on dining, and many more.
Cons of co-branded credit cards
Annual fee
The annual fee is a crucial factor in deciding whether you should keep the card or discontinue using it. Annual charges usually range from $100 to $200. If you’re not able to get benefits more than this amount, then it’s not worth keeping it.
High APR
Like any other credit card, co-branded credit cards also have a very high annual percentage rate. Thus, always make sure to pay their bills at the right time. Otherwise, interest rates can very frequently eat up your benefits earned so far.
Limited redemption options
Each co-branded credit card has its own set of rules regarding redeeming loyalty points. Earned loyalty points can be usually redeemed in the same brand. Sometimes you may be offered a range of collaborated brands where you can redeem these points. So, the more options, the better the deal is.
Restrict you to try other brands
Since you have already paid annual fees and you are under psychological pressure to get the maximum benefit out of the deal. Due to this, you may sometimes end up purchasing and also you are less likely to shop around and may not experience other brands that may have provided a better experience for less cost.
Should you use co-branded credit cards?
Most of the co-branded credit cards charge annual- membership fees. If you find that your benefits are more than this expense, then they can be good options to consider. For, if you hold a travel co-branded credit card which usually comes with an annual fee of $500 and you are expecting only one or two in a year then they may not be the aright choice for you. Planning a new tour just because you have this credit card could be a bad idea. However, if you are expecting multiple travel, then then can really help to save as well provide some extra facilities at discounted cost like lounge access.
Common types of Co-branded credit cards
Travel co-branded credit cards
These cards can be helpful if you are a frequent traveler. Benefits include joining bonuses and discounted fair for rental cars. You should choose wisely between general travel cards and co-branded travel cards. Co-branded cards may provide more benefits but restrict your flexibility. Some of the benefits offered are:
- Sign-up bonuses.
- can be redeemed for air travel, car rentals, etc.
- Free insurance for rental collision damage, and lost luggage.
- Annual travel credits. and lounge access.
- Reward points on expenses of restaurants, EV charging stations, and gas stations.
Hotel chain co-branded credit cards
These cards offer various benefits across various hotels. You can easily get extra discounts and sometimes other free facilities like pool access, spas, and some premium events. The most popular hotel co-branded credit cards include Radisson Hotel Group, Hilton, Hyatt, Marriot International, etc. Some of the benefits you can avail are:
- Sign-up bonuses.
- Discounted stay which can be further reduced with redeem points.
- Sometimes special offers like free nights.
- You can get even free stays sometimes.
- Elite status.
- Some brands also offer free anniversary nights.
- Discounts on dining.
Retail co-branded credit cards
Retail co-branded credit cards can be beneficial if make most of your retail purchases from a particular store or brand. You can easily avail some additional benefits like:
- Member special prices.
- Rewards point which can be redeemed on next purchases.
- During special schemes and seasonal offers, you may get zero-interest rate financing.
Airline co-branded credit cards
If you frequently fly with particular airways then consider taking their co-branded credit card. It could be a good decision as they not only reduce your expenses but can also provide additional comfort. Also earned rewards points can also be redeemed at hotels, restaurants, and airline purchases because airline firms are usually in partnership with many other travel and hotel firms. Popular benefits are:
- Sign-up bonuses
- Lounge access
- Waived baggage fees
- Dining bonuses
- Priority boarding perks
- Travel delay reimbursement
Conclusion
Your lifestyle keeps on changing with time and your income level. So, you should only keep those co-branded cards that meet your specific needs. Also, while selecting the card make sure that it not only caters to your needs but also maximizes your savings.
