Types of Cashback Loans
There are a wide array of cashback loans that you can pursue, depending on your financial situation and the assets that you might own (or be looking to purchase). The primary types of cashback loans are mortgages, personal loans and car loans. Let’s take a look at each.
Cashback Mortgages
When pursuing a home mortgage, you can consider the idea of taking out a cashback mortgage. In this instance, you will essentially be taking out a mortgage for above the house purchase price; the excess amount typically ranges between 1-7% and will be returned to the borrower as cash after closing on the home. This is a great option for first-time homebuyers looking to have an extra chunk of cash as a safety net for their home ownership.
Pros
- Excess cash as a “safety net" for home ownership.
- Cashback payment and mortgage are bundled in a single, monthly mortgage payment.
Cons
- Higher interest rates than a traditional mortgage.
- May have more strict qualification requirements.
Cashback Personal Loans
If you aren’t looking to make any major purchases like a home or vehicle, your best alternative is probably a cashback personal loan. In this instance, the borrower receives a lump sum after the loan is approved – you can use this loan for anything ranging from debt consolidation all the way to vacation or home improvements.
Pros
- Immediate cash with no restrictions or limitations on spending.
- Doesn’t require a major purchase like a vehicle or home.
Cons
- Interest rates are typically higher than a standard personal loan.
Cashback Car Loans
The third main cashback loan is a cashback car loan. Similar to the mortgage option discussed above, this is an option for people looking to purchase a vehicle and get some lump sum cash back during their purchase process. An example of this could be as follows: say you intend on financing a $30,000 car with a 2% cashback option. After purchasing the vehicle, you will receive $600 back in the form of cash as a rebate essentially. This is a decent option for individuals looking to have some cashback to be used for alternative expenses like insurance or general car expenses.
Pros
- Additional cash up front for car expenses or insurance.
- Small rebate as a “bonus" on your major purchase.
Cons
- Generally higher interest rates on your financing option.
- Potentially higher fees or payments required.
What is a Cashback Loan?
A cashback loan is a loan where you receive cash from the lender as a partial rebate after the loan is approved. Say, for example, you take out a $10,000 loan – upon receiving approval for the loan, the lender would provide a cash rebate of say $500. Typically, the cashback amount is a percentage of the loan amount or a fixed sum; lenders use this as a tactic to attract borrowers who otherwise might opt for a different type of loan or debt.
Generally speaking, cashback loans are tied to the assets that the applicant owns, including mortgages or car loans. As should be expected, a cashback loan will come at a higher price for you than other debt options. While the cashback portion is a financial boost, the loan itself will usually have higher interest rates or specific terms that might make them more expensive in the long-term.
Below, we will discuss various types of cashback loans, their benefits and drawbacks and a conclusion discussing whether or not these loan types are for you.
Is a Cashback Loan Right for You?
As you can see, there are quite a few options when it comes to cashback loans – above, we have simply covered the three most common varieties of the loan option. When considering whether or not a cashback loan is right for you, it’s most important to understand your liquidity position and how much of a safety net you have set aside for yourself or your family.
If you’re spending a significant portion of your savings and emergency fund on a home purchase, it might make sense to pursue a cashback mortgage loan to have a bit of a safety net as a backfall. Similarly, you might consider the same reason when looking to purchase and finance a new car.
If you’re not looking to purchase at all, the cashback mortgage loan might be right up your alley – my best advice here, though, is to only take out debt like this if you find that you need it. It’s not in your best interest to take out debt like this for something like a vacation, for example.
Cashback Loans: A Smart Way to Borrow
It’s important to understand the pros and cons of each loan possibility and to compare them to your specific situation. Whether or not these loans are right for you, be sure to analyze all of your options before deciding to jump into a cashback loan!
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