Pay rent with credit card? Tempting, but risky

There's a question that inevitably comes to mind at some point for cash-strapped or rewards-conscious credit card users: Can I pay rent on my credit card? The answer up until now has been no. A new Canadian service aims to change that -- but just because you can put your rent on plastic doesn't mean you should. rent-with-card

RentMoola, a Vancouver- and Toronto-based startup, allows users to pay online for rent, condo fees, deposits and other housing-related charges. "We really are a paperless payment network for the real-estate industry," says RentMoola's director of customer success Andrew McLeod. "RentMoola allows property managers, landlords and [Real Estate Investment Trusts] to accept credit cards and direct debit payments for rent instead of time-consuming and easy-to-lose cheques."

The firm has signed up almost 150,000 rental units, mostly in British Columbia and Ontario, servicing about 170 buildings in Toronto alone. Plans are underway to expand in the U.S.

Cardholders pay the fees
Property managers and landlords who use RentMoola enjoy free privileges. Once their password-protected online account is set up, they can accept rent payments from tenants using Canadian or international credit and debit cards from American Express, Discovery, MasterCard or Visa.

Renters pay all service charges -- $2 per debit payment or 2.75 per cent for each credit card payment. When a card account is maxed out or near its limit, a RentMoola transaction is declined. Tenants are notified on the day a payment was supposed to be processed, and are presented with other options.

"To date, all of our declined payments have been rectified within 24 hours, which is a benefit to both the tenant and the landlord," comments McLeod. He points out that participating tenants avoid a $45 insufficient funds fee imposed on a rejected cheque, while landlords get their money without having to evict anyone.

Debt spiral danger
Critics see red flags for consumers who use the service. Rent payments involve large sums of money - averaging more than $1,200 for a two-bedroom flat in Vancouver or Toronto. And according to the Canadian Payroll Association's 2013 survey, 42 per cent of employees would face financial difficulty if their paycheque was delayed by just one week.

So while RentMoola provides helpful bridge financing if used sparingly, it could lead to severe debt problems should tenants become dependent on credit to cover their rent. Financial adviser and best-selling author Garth Turner issued a stern caution about RentMoola: "Now you can Visa the rent, then make minimum monthly payments on an escalating balance. Yikes. Imagine where that could lead."

McLeod downplays that idea, saying the service is not targeting students, freelancers or seasonal workers with fluctuating incomes. "Our target audience is young professionals who are tech-savvy and understand the value of being able to pay their rent online," he says. "They don't have time to write cheques because they're on the road a lot, often travelling outside Canada."

McLeod says that a one-time housing payment by credit card is RentMoola's norm. It's typically the first payment that customers put on their credit card, as was the case when McLeod had to come up with a total $4,000 in first and last month's rent, deposit money and fees before the 26-year-old could move into his rented Toronto condo.

Enticing credit card rewards
The company's main pitch seems to be the lure of racking up credit card points by the thousands. Its tag line is "Paying rent is rewarding," and the website's home page headline reads "No paper. All perks."

But in most cases, the rewards are not worth the fees. In response to an informal poll posted on SmartCanucks.ca's personal finance forum, 6 out of 7 consumers said they wouldn't pay the 2.75 per cent fee on a credit card rent payment. To give some perspective, the average $1,255 monthly rent in Vancouver would incur an extra $34.51 user charge.

Ken Dreger, a managing partner at the public accounting firm Joseph Lea and Associates, tested CIBC's credit rewards calculator and found rewards ranging from 0.8 to 1.3 per cent. This is less than half RentMoola's credit card fee percentage. Dreger concludes that RentMoola is best suited for consumers needing quick, short-term financing to pay rent and who want to avoid higher-cost alternatives like payday loans.

Jason Heath, a fee-only planner and managing director at Objective Financial Partners, has a different take. "RentMoola's rewards plus perks could compensate for the 2.75 per cent cost," writes Heath.

"But like any financial decision, you need to look at your own situation and decide if it's a benefit worth the risks."

See related: 5 myths about contactless payments; Want more rewards? There's an app for that 
Published December 20, 2013

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