Pay Rent Through Credit Card: Know the Pros & Cons
Have you ever imagined that you can earn rewards for paying rent for the apartment you live in? While this seemed a distant dream even a few years back but now the ease of paying rent using your credit card makes this distant dream a reality. It has been observed that even after deducting the charges, a person can earn around 2.5% to 3% return from the premium credit cards if they use it for paying rent. That said, there are things to be considered while paying rent using credit cards. This article will help you understand both pros and cons of rent payment via credit cards.
Let’s first understand the benefits you can avail yourself by paying rent using a credit card and these are –
- Rewards every month: Rent is an indispensable expense paid every month and thus you can earn rewards every month as well. As there are reward points, air miles, and cash back for all credit card transactions, rent is nothing different. When you pay rent, you earn these rewards. Now the kind of reward will depend on the type of credit card you are using. If you are using premium credit cards, then you can earn air miles, cash back and other rewards as well.
- Annual fees waiver: Every month you have a fixed transaction via your credit card which automatically increases your credit card spending and thus helps in waiving off the annual fees that otherwise would have to be paid by you. While that is a thing, many people miss a hidden benefit here. If you use a credit card regularly and clear your dues on time, this will help you increase your overall credit limit and paying rent can be beneficial here.
- Credit score improvement: This goes without saying that when you use a credit card and clear your dues regularly, it will improve your credit score. The credit history will improve as the credit report will display regular use of credit and regular repayment. This can help you get another line of credit or home loans, business loans and other loans easily.
- Effortless: You can set auto-debit for your rent payment on your credit card. This would help you pay rent on a particular date every month even if you forget to pay or is busy with work or travelling. This reduces the hassle for both landlord and the tenant as they do not have to transact using cash or go to the bank to deposit the rent amount or manually pay the rent every month.
- Boon during cash crunch: During the pandemic, many people turned to their credit cards for paying rent. This made the behaviour so evident and why not! The pandemic took away a lot of people’s earnings source and thus credit payments for rent were the most viable option. However, not just the pandemic, renting a credit card using a credit card can be a blessing during any cash crunch situation. For instance, you are a self-employed person and in a month, your earnings are lower than average, so for that month, you do not have to ask your landlord to adjust the rent next month if you have a credit card with you. You can pay the rent using a credit card and then within 45 days you can just repay the amount. Here is one thing you should notice and that is the timeline of 45 days for which you can use a free credit. Only after 45 days, if you do not repay the credit card bill then only interest charges get levied on the amount due.
While these are the crucial benefits of using a credit card for rent payments, there are certain things to consider as well while indulging in this process.
- While optimum and wise utilization of the credit card can help in improving credit scores, overutilization can lead to a decrease in credit scores and have adverse effects on credit history as well. If you are not able to clear your credit card dues within due time, then your credit score will get affected. Excessively higher credit utilization ratio will have an adverse effect on the credit score too.
- Penalties and fines are levied when you miss the deadline for repaying your credit card dues. So, if you are paying rent using a credit card and fail to repay the amount within the due date, then penalties, interest charges, and fines will be levied. This will increase your expenses of yours and also lead to a credit score decline and thus lowering the chances of getting loans in the future.
- While a credit card can be a boon during a cash crunch but you cannot make it a habit of using a credit card to pay rent every time you have a cash crunch. This will increase the debt burden instead of making you fall into a vicious cycle of debt.
- Another point that you must look at is whether you can use the rewards you are earning while paying rent using a credit card or not. If you are mainly travelling for work which is reimbursed by your company and you have a credit card on which you earn a reward such as air miles mostly, then maximum rewards will go in vain, isn’t it? In that case, your actual expense will still be higher for using a credit card for rent payments and the rewards are wasted.
- There is also another drawback of paying rent via credit card and that is a credit to cash conversion loophole. As it is quite easy to add anyone as a beneficiary on your credit card and send them money, one can misuse the feature by adding friends on a family member as landlord and sending rent amount to get cash from them. While at first instance, it may not seem like a risk to the cardholder, if you dig deeper, and continue with this practice, it will lead to a higher debt ratio and decrease in credit score and future possibilities of availing other loans.
Thus, if you are considering paying rent using your credit card next time, make sure you are using it wisely. Also, you need to look at the charges, fines and other expenses of paying rent via credit card. You need to analyse why you want to pay rent using a credit card and weigh the pros and cons to get a wise idea of the situation. You can’t just pay rent by adding more rewards to your credit card or increasing your credit score in one go. You need to synchronize the process and make the most out of it by making wise choices.
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