Credit card rent payments: Is it a smart financial move or a risky choice? | Mint

While credit cards have made rent payments unattractive by levying charges on such expenses, there are several third-party apps that still offer the service by offering bonus points, cashbacks and gift vouchers. Rent payments to landlords through digital modes such as third-party apps, mobile wallets and credit cards surged during the Covid pandemic.

But credit cards have started to clamp down on this practice. Several leading banks have imposed a 1% fee on such transactions in the last 3-4 months. Here are a few things that you should keep in mind while paying rent with your credit card.

How does it work and what are the advantages?

You can pay rent by using your credit card only through third-party apps. For this, you have to install the app by downloading it from Google Play Store or Apple App Store. Then, you have to sign into the app by providing your credentials. You also have to enter the details of your landlord that include her/his name, mobile number, PAN card details, bank account number, IFSC and UPI (Unified Payments Interface) address.

Once you have added all the information, you can proceed to make the rent payment using your credit card. Please do note that the rent amount that you actually have to pay to the landlord will not be the final amount that will be deducted from your credit card as you will also be levied a service charge. You can also set an autopay feature that will allow the rent amount to be deducted from your credit card on a specific date each month.

The service charge varies with each third-party app. But most service providers levy 1%-1.5% of the rent amount as charge. The transaction charges can also be as low as 0.39% of the rent amount.The biggest benefit of using credit cards for rent payments is the availability of the interest-free credit period that can be as high as 50 days. Though these apps provide benefits in the form of cashbacks and reward points, they have been largely negated by the service charge levied by banks for making rent payments.

Are there any payment limits?

Third-party apps have imposed clear limits for rent payments that vary with each service provider. While multiple rent payments are not allowed in the same month, apps also renew your rent payment limit in the first week of every month. This is applicable for house rent, maintenance and office rent payments.Apps also have minimum and maximum limits for rent payments. For instance, rent payments below ₹2500 are not allowed by some apps. You have to upload the rental agreement if the monthly payment is above the level specified by the app.

What are the disadvantages?

Paying rent through credit cards comes with its own set of disadvantages. If the rent amount is high, it will adversely affect the credit utilisation ratio, especially in the case of entry-level credit cards. This will have a bad impact on your credit score.

For the uninitiated, only merchants can receive payments through credit cards. Merchants have to do a KYC (Know Your Customer) and need a payment gateway (point of sale terminals or other digital modes) to accept such payments. Since landlords are individuals, they would not have done merchant KYC.

Also, third-party apps do not require users to get landlord’s permission for rent payments through credit cards. There is no need for a landlord to be a user of the app to receive the money. Third-party apps play the role of super merchants by aggregating payments due to a large number of vendors, who are none other than landlords.

Though there is no rule that does not allow this practice now, it is still a grey zone where there are no clear set of norms prescribed by the regulator. Further, card issuing banks and third-party apps levy a service charge separately on rent payments. So, unless absolutely necessary, do not pay rents through credit cards.

Allirajan M is a journalist with over two decades of experience. He has worked with several leading media organisations in the country and has been writing on mutual funds for nearly 16 years.