An affinity credit card is a loyalty credit card, which promotes an organization’s brand and image, every time you use the card. The credit company pays a percentage of profits for each transactions or a bonus for every new account created to the brand owning organization. These brand owning companies or institutions can also form a profit sharing joint venture on a 50-50 basis also. The concept first started in the form of Diners Club in New York, and this tradition has now stuck to various parts of the globe. The move has proved to be really helpful because the synergy between brand owners and credit card companies have been fruitful to both of them. Consumers get points for using the brand as well as the card which means there is brand loyalty for both the card and the brand owner.
On the face of it, it seems to be a good move to go for affinity cards because you can benefit from a lot of reward points and discount offers etc. For instance, if you have an affinity card from a travel company, you can get frequent flyer points. Today, the industry of affinity cards has grown so big that now we have such kind of cards for travel, entertainment, dining, retail, accommodation and so on.
Are affinity credit cards a financially sound decision? Well, one needs to give a careful thought to that one. Here are the disadvantages:
1. You are limited by the brand for which you are issued the affinity card. You can only buy products and services from the partnered establishment if you want to earn those reward points and discounts.
2. Affinity cards do not normally have instant cash-back. The points keep accumulating and you have to withdraw for a certain benchmark before you get discounts or withdraw against reward points.
3. There are hidden costs involved in the form of transaction fees, which you may need to go through in the affinity card offer document.
4. The Annual Percentage Rate (APR) for these cards are higher than regular cards, which means you pay higher interest fees compared to conventional credit cards.
5. There are some affinity cards with charity logo in them, which implies that you are supporting charitable courses when you use the cards. But if you really want to do your bit for charity, affinity cards is not necessarily the best way, according to financial experts. As mentioned before, the interest rates on these cards are high and the hard reality is that affinity cards only donate 0.5 percent of your purchases towards charity.
6. Not Tax Deductible – One more thing to note about affinity cards particularly the ones that are charity oriented is that the amount that goes towards charity from your purchases is not tax deductible on your returns. So, if you are looking towards contributing to charity, it is better that you contribute directly and claim it as deduction rather than go the affinity card way.