If you are a tenant, you may very well understand the pressure of paying house rent on time, every month. With the coronavirus pandemic affecting the finances of most of the working class, paying the monthly rent on time became a burden for many tenants. Some platforms were quick to launch the facility of rent payment using credit cards, at a minor convenience fee. . If you are sure of paying back your bills on time (including a heavy rent payment), credit cards can be very helpful for paying your rent on time, especially if you are facing cash flow problems.
However, it is important to go through the pros and cons of using credit cards for rent payments and then proceed for the same.
Factors to consider before paying Rent with a Credit Card
Consider the following mentioned factors before you decide to pay rent using your credit card-
Rent payments via credit card often come with processing fees. For instance, if you have a rent payment of Rs. 30,000, and you are paying 2.50% processing fee, that’s an additional Rs. 750 every month.
In case your salary gets delayed and you don’t pay your credit card bill in full and on time, the interest payment on your outstanding balance can pile up. The high interest charges plus the processing fee would undoubtedly escalate the amount and might lead to a debt spiral.
Effect on your Credit Score
Paying rent using your credit card could lead to an increase in your credit utilization ratio, which can negatively affect your credit score. Credit utilization ratio is a key factor in your credit score, so you should keep it low, preferably less than 30%.
|Pro Tip! If you want to pay rent using your credit card, consider doing it with the card that has the lowest interest rate, and try asking for a credit limit increase from your credit card issuer first. And then, of course, pay off the amount in full every month, or contribute as much as you can.|
Why pay Rent with Credit Card?
Using a credit card for paying rent has its own advantages, especially for those who face liquidity issues by the end of the month. Not only will you be able to utilise your unused credit card limit, you will also be able to avail additional benefits and advantages that come with it. Here we have listed some-
1. Get Reward Points on your Credit Card
Unlike cash transfers, credit card expenses can earn you additional reward points that can be redeemed in exchange for flight tickets, shopping vouchers or even travel packages. You can also earn attractive deals, coupons and offers from popular retail and online brands on these rent transfer apps.
2. Stress-free timely payments
Suppose your rent due date is the first of every month but your salary gets credited on the seventh of every month. You may not be able to convince your landlord to wait till the eighth, to transfer the rent. In such cases, you can use your credit card limit to transfer the rent on time. If your credit card bill generation is on 15th and the due date falls on the 4th of the next month, you would effectively be deferring your rent payment by almost a month.
3. Boosts your Credit Score
If you have an unused limit on your credit card, you can use the same to maintain your credit score. However it is advised not to go beyond 30% of your credit utilization ratio as it can negatively impact your credit score.
Must Read about Lowering your Credit Utilization Ratio
4. Easy Bank Transfer
Unless you are doing IMPS or UPI payment, bank transfers are really time-consuming. However, apps like MagicBricks, Housing.com, Red Giraffe, Pay Matrix etc. that facilitate rent payment using a credit card, transfer the amount immediately, with minimum formalities. You can also automate your rent payments, for hassle-free transfers every month on a certain date. Once the transfer is completed, you and your landlord will get the notification via SMS.
5. Meet Spend Milestones Easily
Many credit cards these days come with an annual fee waiver and other milestone-based privileges, which simply means you can renew your credit card for free or get extra rewards/benefits if you meet the spend criteria. For example, SBI Card Prime needs Rs.3 lakh to spend for renewal fee waivers. If you use your credit card for paying rent, it will be much easier to reach that milestone and get the fee waiver.
How to Pay Rent using a Credit Card?
A credit card can be used to transfer money/make a payment by swiping it at merchants POS terminals but you cannot transfer money through credit card online to your landlord directly unless the landlord has his/her own authorised web portal, which has to be linked to a payment gateway, to do so. This process requires a payment gateway to get the rent transferred via the card.
A payment gateway helps in facilitating payments transactions by the transfer of information between a payment portal (such as a smartphone, websites, etc.) and the acquiring bank. Rent payment platforms provide portals like these to allow payment using credit cards.
Housing.com has recently launched a ‘Pay Rent’ platform on its mobile app to facilitate rent transfers using a Credit Card. Whereas, MagicBricks and RedGiraffe offers this facility via ‘RentPay’, in association with HDFC Bank which allows HDFC Bank customers to pay rent using their credit card by registering at the RedGiraffe website.
You need to fill in your details, along with that of your landlord. After the due process is complete, you are issued a RedGiraffe ID (RG-ID). You need to register this RG-ID with HDFC Bank. Once the one-time registration is complete, the monthly rent payments will start getting credited into your landlord’s bank account each month on a predetermined date. A nominal fee is charged for this purpose.
There are, however, other platforms like Paytm, Cred, NoBroker, PayMatrix etc. which can also be used for paying rent via credit card. The process and applicable charges will differ depending on your chosen platform.
We have given a comparison below to help you decide which would be the best choice for you.
Best Rent Payment Platforms
|Top Rent Payment Platforms||Basis of Difference|
|Agreements||Monthly Payments||Ad-hoc payments||Processing Charges||Supported Card Networks|
|Red Giraffe||Required||Enabled||Not Enabled||0.46%||HDFC/Kotak/YES/SBI/IndusInd/RBL/Standard Chartered/HSBC|
|MagicBricks||Only if asked||Enabled||Enabled||1%||Razorpay/HDFC Visa/Mastercard/Credit Card|
|No Broker||Only if asked||Enabled||Enabled||1% till Rs. 75,000|
1.5% above that
|CRED||Not Required||Not Enabled||Enabled||1.50%||Visa/Mastercard/Amex/Diners Club|
|Housing.com||Not Required||Not Enabled||Enabled||1%||Visa/Mastercard|
|PayMatrix||Not Required||Not Enabled||Enabled||2.36% (48 hour cycle)|
2.70% (within 24 hour cycle)
|PayDeck||Not Required||Not Enabled||Enabled||2.50% (48 hour cycle)|
2.65% (within 24 hour cycle)
While it’s good to see so many options, the matter of fact is Red Giraffe remains the top choice for the majority of the users, due to its low fee. But if you prefer convenience, wish to stay away from documentation and rather need a quick solution, other apps may help you. Remember that you may need to check each app every month to see which one has the best offer, as the offers and the processing fee keeps on changing.
Pros and Cons of using Credit Card for Rent Payment
Following are some of the advantages and disadvantages of paying rent with your credit card.
|You can save cash if you are facing financial crunch||The credit card company will levy extra charges (approximately 2-4%)|
|You can earn reward points which can be redeemed further||Interest charges can be extremely high on credit cards|
|Your credit history and score will improve if you pay the dues on time||Using your credit card continuously for every expense can lead to negative credit score|
|Provides flexibility and eventually increases your liquidity to pay your rent on time||There are possible chances of missing payment in case the credit limit exceeds or the card expires|
|You have the option to defer the payment till the bill’s due date (that is usually 45 days)||Increased credit utilization can negatively impact your score|
|You can easily generate digital rent receipts and get it on your email id, hence no chance of losing the receipts||If you fail to repay the minimum amount due on your card, the bank may charge an additional late payment fee along with the interest|
Still confused whether you should use your credit card for rent payment ? Click here to know more.
When you are deciding whether to pay rent with a credit card is the right choice or not, keep the advantages and disadvantages in mind. You might, for instance, be able to reap credit card rewards for charging a rent payment, but you might be heaping on more credit card debt at the same time.
Ask yourself this: Will putting a rent payment on a credit card make sense in the short term but be harmful in the long term? The answer to that question could help you decide whether to go ahead with the idea of paying rent with your credit card.
Whatever your decision, be sure to keep your credit and financial health in mind. If conditions are in your favour and it’s done responsibly, paying your rent with a credit card could help you build credit and even save you some money. It’s possible, however, that it could stretch your finances thin and cause you to end up under a mountain of debt. Weigh your options carefully, and be sure to monitor your credit moving forward.