Should You Pay Rent Using A Credit Card

You can pay rent through credit cards directly to the landlord or using third-party platforms. Welcome bonus, reward points, and convenience are some of the benefits that you get by using a credit card to pay rent. But there are also certain risks that come with it due to which banks have started putting restrictions. Let us now get an insight to see if paying rent through credit cards is the best bet. 

Pros of Paying The Rent Using A Credit Card 

You can earn reward points, cashback, and welcome bonuses

• Some instances of the offers on paying rent via credit cards:

• 40% cashback (up to Rs. 2,000) on rent payments via Magicbricks where the minimum rent amount is Rs. 5000.

• Earn up to Rs. 30,000 by just paying rent for a year by using your credit card on NoBroker 

• Premium credit cards like HDFC Infinia/ Diners Club Black or Standard Chartered Ultimate offer 3.3% return (cashback, reward points or airmiles) on almost all spends. Even after considering the 0.46% charge, users get 2.8% return on a big ticket transaction like rent.

• 10x Edge reward points on paying house rent via Axis Bank credit cards through Magicbricks. 

• You can get time to pay the rent if you are short on cash 

• Helps in increasing overall spends thus making you eligible for annual fee waiver, card feature enhancements, and credit limit increase 

• It can help you build your credit score. 

• You can get an interest-free credit period of up to 45 days.  

• Timely payment without delay even if there is a lack of liquidity

• You can set standing instructions so that you don’t miss out on rent payments

• Get automated rent receipts and digital proof for rent payments. 

Cons of Using Credit Cards To Pay Rent 

• It will lead to accumulation of debt if you don't pay your bills on time. 
• May lead to an increase in your credit utilization ratio if your debt is accumulated. 
• An increase in CUR will impact your credit score negatively 
• Rental platforms charge you to pay rent.
• You will have to bear interest charges if you do not pay your credit card bills on time.

Apart from the above disadvantages of paying rent using credit cards, Do You Know that people misuse the rent paying facility of credit cards

Credit Card Frauds in The Name of Rental Transactions 

Nowadays, many people are transferring money to the accounts of their friends or relatives instead of the landlord’s claiming it as rent. This is easily possible all the more because rental platforms don’t ask for a rental agreement at all or don’t make it mandatory. These people will then get the money back. 

Rental transactions being big-ticket will generate more reward points. They will help the user in achieving milestone spends,  and this leads to a waiver in credit card renewal fees. This is a loss to the card issuer or the bank as people earn reward points and waivers without making any bonafide transactions. Furthermore, to withdraw cash from the ATM using credit cards, users have to pay 2.5% to 3% of the amount taken out. But, using this rent payment facility, cardholders are cashing out funds at virtually zero charges. 

Also, rent received by a friend or family member is taxable after a standard deduction of 30%. A tax of 30% + surcharge + cess can be charged on the rental income based on the slab rates. The payer is also eligible for a tax deduction of 5% under section 194-IB if the rent is greater than Rs. 50,000 in any month. So, he is claiming a tax deduction without paying rent.

Steps Taken By Credit Card Issuers To Counter Misuse 

Credit card issuers have been keeping track of the risks involved in paying rent using credit cards. Since the volume of fraudulent transactions has gone up, many have started placing a limit on spends as well as reward points on rent payments. Some have placed a service charge on rental payments. 

• ICICI Bank has announced a fee of 1% on all rental payments. 
• RBL bank has allowed only one rent payment in a month with an upper limit of 50% of the credit limit for its Shoprite card.
• Axis Bank has eliminated reward points for rent payment on its ACE card and put an upper limit on its super premium cards.
• In June, HDFC Bank capped reward points on rent between 500-2,000 per month. 
• SBI Card will charge a processing fee of Rs 99 (exclusive of taxes) on rent payments from November 15th. 

Different Platforms Used To Pay Rent Via Credit Cards

Conclusion

The attraction of using credit cards to pay rent is slowly decreasing since banks and other lenders have started cutting down on rewards and imposing upper limits on rent payments via credit cards. This list will continue to grow considering the present scenario. 

FAQS of Should You Pay Rent Using A Credit Card?

1:Does paying rent through credit card count as cash advance? 

Some vendors may process credit card payments as cash advances. The implications of this are not good. So, read the fine print to make sure that your transactions are registered as purchases. This way, they will earn rewards and won’t start accumulating interest immediately. 

2:What are your charges for paying rent through credit card? 

Your credit card issuer may charge a minimal processing fee of 1 to 2% per transaction you make to pay the rent using your credit card.