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Does it make sense to pay rent through a credit card?

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Summary

  • Credit cards carry the steepest interest charges among all loans, which can balloon to over 30% annually

Sachin, a resident of Vijaywada in Andhra Pradesh who goes by only one name, started paying house rent using his credit card through Cred for the sake of convenience. He had for long been using the app for his credit card payments and the rent payment feature allowed him to add another recurring payment to the list.

“I got casually habituated to the feature as it saves me the hassle of remembering the payment every month," he said. However, Sachin is prudent about credit card usage. “I don’t use credit cards for other expenses and make sure to repay the bills fully within the interest free window."

What about the transaction fee that he has to pay for each payment? “Yes, I realize that there is a cost, even if it’s small, for the convenience. Also, most of the time, the service charge gets waived off against the Cred coins accumulated in my account," he said.

Like Cred, many platforms like Mygate, Nobroker, Paytm, PhonePe and Magicbricks, among others, allow users to pay rent using credit cards. As with most transactions done through credit cards, cardholders stand to earn rewards.

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What’s on offer

You just need to add the landlord’s bank account details or UPI (Unified Payments Interface) address under the recipient option and complete the transaction. You need to furnish your landlord’s PAN details if the payment exceeds 50,000. Some platforms may ask you to add the address of the property, but you don’t need to upload the rent agreement, past rent receipts or any other supporting documents with regard to tenancy. “We have an automated risk-mitigating system to monitor all rental transactions. In case we find any discrepancies or if a transaction appears to violate the purpose of the service, we ask for a rental agreement to complete the transaction," said Praveen Boda, chief financial officer, MyGate.

Some platforms may ask you for a rental agreement if the monthly rent exceeds a certain limit pre-determined by the platform. As for rewards, each platform has its own reward system and this may vary on the cards the platform has tie-ups with. Raj Khosla, founder and MD, MyMoneyMantra.com, said offers on rent payment feature are transitory in nature and users may not always get rewards. For instance, Sachin has yet not earned any cashback or other rewards on the four rent payments he has made so far.

Should you use it

“Paying rent through a credit card is certainly rewarding as you get system-generated rent receipts, additional liquidity because of the 45-50 interest-free repayment window; reward points; facility of automated payments, and the benefit of paying rent even if there is a funds shortfall," said Khosla. But, he added, that the cumulative advantages come at a cost that also requires you to remain fiscally disciplined. Most platforms charge a service or transaction fee on this feature (see table). Since the platform does not charge MDR (merchant discount rate) to the landlord, which is the merchant in this case, it charges the user paying the rent in the form of transaction fee.

Defaulting on credit card bill payment or even paying the minimum due attracts interest on the principal which can balloon to over 30% annually. Customers should also be careful to not exhaust the credit limit frequently as high credit card utilisation rate can have a lasting damage to the credit score.

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