Why Do People Give Out Free Loans to Companies by Buying their Gift Cards?
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My Uncle buys gift cards from coffee shops for his own use. He told me that it is very convenient because he goes to the coffee shop everyday and can just order his latte and charge it on the card. When the card runs out of money, he can just reload it with a credit card. All this did not really make sense to me at the time but I figured I should go home and think about it before I disagree with his theory.
After some thought about it at home, I still do not get it!
It seemed to me that paying with a credit card would give the same convenience that a gift card would. When I pay with my credit card at Starbucks, I do not even have to sign for my purchase! Other than the fact that I would get one transaction each time I buy a drink instead of one per gift card purchase, I really cannot see any advantages of using a gift card.
However, the disadvantages of buying the gift card means that I am prepaying for my purchase ahead of time. I am in effect giving out an interest free loan to Starbucks. What makes it even worst is that the loan documentation (the actual card) can be lost, making the loan non-collectible (Side note - Can I sue Starbucks for default on the loan?).
The other downside to buying a gift card (especially a Starbucks gift card) is that it indirectly makes you buy (drink) more! When we already prepaid for a gift card, we are much more likely to go into the store and purchase something because the money does not seem like it is coming out of our wallet!
There seems to be only downside and no upside! My question is - Do you buy gift cards for your own use too? Why do you do that??? Anything I am missing here? Any information would be great before I go bat some sense into my Uncle 
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That’s a great way to look at those cards! And if you use a credit card instead you can take advantage of rewards (if your card has them). Though I’ve seen Starbucks offering 2 free iTunes downloads when you activate a card. That could help make it worth it? The only real advantage might be to stay out of credit card debt. But that might only really work if you buy your Starbucks card with cash.
I recently bought three $100 Land’s End gift cards because I could get them for $75 through a promotion (and because I was to the point with my clothes where I was going to work in yoga pants!) Saving 25% was the only reason I bought those for myself. I guess 25% interest on my loan to Land’s End isn’t bad
Otherwise, yes, I think one should stick to buying gift cards solely for just that–gifts.
You make great points. I think in your uncle’s case, he’s probably wasting money.
However, in my city (Pittsburgh) a grocery here offers a fuel discount when you buy a certain amount of giftcards there.
For example, if I spend $50 in giftcards from Giant Eagle (say I bought a Best Buy gift card and one for dinner at the Olive Garden), I’ll get $0.20 off per gallon of gas.
If I buy the gift cards on a Friday and go out to eat and go to Best Buy that weekend, I could save about $3 if I had to fill up my car.
It’s not a great deal, but it’s the only time I’d consider buying a gift card for my own use.
Maybe it can help you budget? If it means you get a discount in some way then I can see why it’s worth it, but otherwise? Not.
Taking what plonkee said - if you know you can only budget say $25 for Starbucks then getting a card is a good way to make sure you stay within your budget.
Hi MoneyNing, I need to share one of my stories! I bought two coffee bean gift cards from Costco few months ago (why two? cuz they sell as a pair) and I thought I saved some money which is I didn’t. The two gift cards are not that “good value” as I thought and I end up lost one! I paid for $24 for each for a $25 face value. Am I gaining anything from that one dallor off? Not really!
Gift cards that offer a discount for pre-paying can make sense ($20 for a $25 card). Gift cards with no discount or other benefit do not offer any advantage, although holding cash instead is no better, since fiat money has (almost) no intrinsic value either: A US dollar is a US gift card: A Federal Reserve Note (dollar) is a free loan to “Uncle Sam.”
I suppose it depends on whom you trust more, the government or the coffee shop.
Free From Broke, Lise, Kacie: I never knew that there could be promotions with buying gift cards. I think the discount would only work if you were going to buy that thing anyway and the promotion just happned to come up. Otherwise, it just enticed you to buy something that you didn’t intend to buy in the first place.
plonkee: Actually, it would be harder to budget since you probably won’t keep track of how much money you have left in the gift card. I doubt anyone is going to say that they don’t want the drink anymore because they don’t have enough money left in the card so you end up recharging it.
Emily: I’m so sad to hear that you lost that coffee bean card! Next time, you can use your credit card to purchase the drink and earn some rewards! Or better yet, make it yourself at home!
J at Not One Cent: I trust the coffee shop more than the government!!! At least I can put my US currency into a savings account. I can’t really do that with my gift card.
Have to agree with you 100% on this topic. It just amazes me when people buy gift cards for their own personal use. All sorts of things can happen between the time you buy the card and the time you use it. It isn’t any more convenient than a credit card, especially at a place like Starbucks which doesn’t even require a signature most of the time.
I see it being more by people who don’t know how to budget otherwise. They figure they will spend a preset amount of money on the card, and no more than that. I’m able to keep track of things like that in my head, so find such games to be silly.
I didn’t make money by giving other people free loans, and I certainly won’t be able to Double my money if I did
My main beef is trying to get the card residue off the card. (That last little bit of change left after other purchases). You either have to buy MORE and pay more, or they get to keep the money anyway. When was the last time any of you used a gift card and it paid for EXACTLY the amount due?
Most times it’s not much, a buck or two, but over the millions of cards used, it adds up.
I have used gift cards from Walmart to get a few cents off a gallon of gas at their pumps. That’s the only reason, though. Where I work (McDonald’s), some of the crew will buy a McD gift card to budget for their meals. They get a 50% discount anyway and by getting a gift card on payday, they know they won’t spend that budgeted amount on other things for the next two weeks. With McD gift cards, when they get to the last little bit, we can use up what’s on the card and they just have to put in a little cash to get that last meal from it.
my wife’s friends used to do that in college.
thats just bloody retarded. the only time u buy gift cards is to give as a gift.
Double: Exactly! When are you going to double your money!?!?
Randall: There is no way you can use exactly the amount, unless you get a gift card from someone who knows what you want from that particular store and calculate the taxes for you. Even then, chances are you aren’t in the same county as your friend, so tax rates are different
Ann: I’m amazed that many people get gas discounts! I wish they have these kind of stuff in California!!!
I just don’t get the budget thing but I guess everyone works differently!
Living Off Dividends: I guess they just call it gifts for themselves!
What if you are passing by another coffee shop (not starbucks) and want to try it out? You may feel guilty for not using your purchased gift card and not willing to try new stuff.
I’m sorry but you are right all the way. There needs to be some incentive… like 5 bucks free for every $50 or something to make it a smart move.
Most of them aren’t loans… $8,000,000,000 in gift cards NEVER get redeemed!
http://money.cnn.com/2007/11/12/news/gift_cards/index.htm
There is hope, though:
http://www.douglaskarr.com/2006/12/26/buy-and-sell-gift-cards-online/
Ya the only valid point i consider while buying a gift card is only if they offer a discount from what is normally charged otherwise its no use buying a gift card.For more info on credit and business cards check out http://www.1800mybusinesscard.com
Carson Coots: Good point!!! This is something the coffee shop that sells us the gift card wants us to do but we definitely want to keep our options open!
Douglas Karr: I know. I have about $200 that isn’t redeemed either because I just can’t find something that I want from that store!
Ray: I have never really seen gift cards on discount. Is there some place that sells these?
I buy grocery “gift” cards through my daughter’s school. I pay face value and the school gets 5% of the value. I think it’s a great way to get companies to donate to the school. I buy approx. $500 in grocery cards each month so her school gets a $25 donation each month.
Elizabeth: Donation is another good idea! But $500 a month is a lot of money! How many people do you have in your family? (Sorry, I only live with my fiancee right now so I’m not sure how much normal family groceries cost!)
MoneyNing - We’re a family of four (two teenagers). Actually we spend over $500/mo — probably closer to $700 — but that includes cleaning supplies, otc meds, tp, and toiletries purchased at the grocery store. I’m not sure what the average family spends. We eat well and mostly organic but not extravagantly and we waste almost no food at all. No soda, few sweets, some packaged foods. We have a few special diets in the family and I think that adds a bit to the total expense.
Elizabeth: Hmm. Something more to look forward I guess even though $700 seems very high. I don’t think I appreciate how much raising someone is though!!
yeah.only way this makes sense is if you get discounted giftcards. Its really the worst present you can get someone. Hey i don’t know or like you very much. here is a gift card. “just give me cash next time.”
Boy I wish our groceries were $500/mo. But we are a family of eight and crazy enough to stay in California.
I’ve purchased gift cards for my wife. It is like giving her a little gift, but have never purchased one for myself.
I find it easier to give gift cards to friends and family and let them pick-out what they want. But really, it just means I’m not working as hard to see what they like, need, or want.
Actually it depends on the initial shopping motivation. Do you shop for purchasing your real needs or for the tempting gift cards instead?
J.C. Carvill
Email: support@cosmosing.com
URL: http://www.cosmosing.com/jeanclaudecarvill/index.php
Yeah, I don’t really follow the logic in funding a gift card with credit. But to each his own.
Around this time of year, it’s tough to come up with really good gifts that people will actually use. Sometimes I break down and give a gift card, or sometimes I give the most universal gift card around: CASH!
-Grant