Paying rent with credit cards? Convenience versus costs & risks

By paying rent with a credit card, you can accumulate rewards, which can be redeemed for various benefits like travel, shopping, or bill payments

Paying rent with a credit card is becoming increasingly popular, offering convenience and rewards too. But financial experts urge careful consideration of the entailing costs and benefits.

 

“Credit card rent payment features are designed for their intended purpose, not as a workaround for personal loans. Using these features to circumvent the need for a personal loan can be detrimental to one's financial health. Consider the costs, and explore traditional lending options, if you require financial assistance,” said Prashant Kumar, CEO at Kredit.pe

 

Using a credit card to pay rent offers some advantage:

 

Traditional payment methods like writing checks or making bank transfers can be time-consuming. Credit card payments, on the other hand, allow for automation, ensuring your rent is paid promptly every month without any hassle.

 

Credit cards also provide flexibility in payment scheduling. For instance, if your rent is due on the 1st of the month but your salary is credited on the 5th, you can still pay your rent on time and settle the credit card bill when you receive your salary. This flexibility helps you avoid late fees and maintain a positive relationship with your landlord.

 

Additionally, many credit cards offer rewards such as points, cashback, or air miles for each transaction. By paying rent with a credit card, you can accumulate these rewards, which can be redeemed for various benefits like travel, shopping, or bill payments.

 

Paying rent with a credit card can be beneficial for those who:

 

Need to meet minimum spending requirements for credit card welcome bonuses.

 

Can effectively utilise reward points for travel or cashback.

 

Require temporary payment flexibility during cash flow gaps.

 

Want to build a strong credit score through regular high-value transactions.

 

Drawbacks of paying rent with a credit card

 

Transaction fees: While paying rent with a credit card has its advantages, it often incurs transaction fees ranging from 1.5 per cent to 3 per cent.

 

High-interest rates: If the balance is not paid off within the grace period, borrowers may face steep interest charges. This situation can quickly lead to debt accumulation if not managed carefully.

 

Impact on credit utilisation ratio: Using a significant portion of available credit for large expenses like rent can adversely affect a person's credit utilisation ratio. A high ratio may lower credit scores if it exceeds recommended limits.

 

Acceptance issues: Not all landlords may accept credit card payments, particularly if they are not familiar with third-party payment platforms. This limitation can restrict a tenant's ability to utilise this method effectively.

 

However, for landlords, accepting rent via credit cards can offer advantages like timely payments and digital documentation. Some remain hesitant due to income tax scrutiny and the need to declare rental income formally.