With credit card users especially those who want to benefit from the billing cycle, paying rent with credit cards has become an increasingly popular trend.
It offers convenience and flexibility, but it's not all sunshine and rainbows. The lack of regulations in this area has led to some pretty unfair practices. The renters are often slapped with exorbitant charges without fully understanding the implications.
“The Reserve Bank of India (RBI) has stepped in to ensure that payment platforms and credit card issuers are more transparent about their charges,” says Madhupam Krishna, SEBI RIA and chief planner, WealthWisher Financial Planner and Advisors.
As per the RBI, credit cards are designed for merchant payments and not for person-to-person transactions. “Consequently, the RBI has not explicitly stopped these payments, it has expressed reservations about the use of credit cards for payments between two unverified individuals (P2P transactions), such as rent, tuition fees, etc., and has asked that credit cards be used only for verified transactions between customers and merchants (P2M transactions),” says Adhil Shetty, CEO, BankBazaar.com, a fintech portal.
Can You Still Pay Your Rent Using A Credit Card?
Individuals can still pay rent using their credit cards through certain platforms. However, they should be aware of potential processing charges imposed by fintech apps for making rental payments. “Additionally, many credit cards are not offering reward points for rent payments, and these payments might not count towards the total spend required for annual fee waivers,” says Priti Rathi Gupta, Founder of LXME, a financial platform for women.
Be Careful
“These companies charge a processing fee, usually between 0.5 per cent to two per cent of the rent amount. They offer a convenient way to pay rent using a credit card, and some even provide rewards and cashback on rent payments. Some insist the payment be converted to equated monthly installment (EMI) slapping more charges on the credit card user,” says Krishna.
So, in case you are using your credit card to pay rent, keep the following in mind.
Interest Rates: Credit cards have high interest rates. “We all know if you do not pay your credit card bill in full, it will attract interest which may be in the range of 16-28 per cent. Continued delays or defaulting payments will spring you into a debt trap,” says Krishna.
Credit Utilisation: High utilization of your credit limit can impact your credit score negatively. “Ensure you manage your credit utilization ratio to maintain a good credit score,” says Gupta.
Discipline: Paying high amounts of expenses like rent with a credit card requires financial discipline. “Ensure you are budgeting your monthly income carefully and have a plan to pay off the credit card bills to avoid debt,” adds Gupta.
Overall, using credit cards for rent payments has its pros and cons. While credit cards offer convenience and can help manage cash flow by providing a time margin for bill payments, it's crucial to be aware of the associated fees and interest rates. Ensure you have a solid repayment plan to avoid falling into high-interest debt and potentially harming your credit score. Therefore, responsible usage of credit cards is the key to better money management!
