Pay rent with credit card? Tempting, but risky

rent-on-plastic

There's a question that inevitably comes to mind at some point for cash-strapped or rewards-conscious credit card users: should I pay rent on my credit card? Now, Canadians have two options if they want to put their rent on plastic, but just because you can put your rent on plastic doesn't mean you should.

You have a couple of choices when it comes to charging your rent: RentMoola and Plastiq.

RentMoola 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," said RentMoola's former 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."

Plastiq is a similar service that allows you to pay your rent, mortgage, utilities, tuition and taxes via credit card.

These services have proven popular, especially with millennials (this age group accounts for about 60 to 70 per cent of RentMoola's clients). But are the services worth using?

Cardholders pay the fees
Unlike a typical transaction in which the merchant pays the service charges, renters paying by credit card are on the hook for the service charges. The reason for this is that the merchant - in this case your landlord - has little incentive to allow credit card payments.

"If you go to your favourite retail store and credit card isn't offered as a payment method, you might shop at a competitor," Seun Adeyemi, senior financial planner at SA Capital, said in an emailed response to questions. But if your landlord doesn't accept credit cards, he said, in all likelihood, you'll still pay your rent some other way.

With RentMoola, the service charges are between 0.65 and 0.75 per cent for debit payments, and between 1.65 per cent and 2.75 per cent for each credit card payment. With Plastiq, you'll pay fees of 2.5 per cent or less on all credit card transactions.

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. McLeod points out that participating tenants avoid an insufficient funds fee imposed on a rejected cheque, while landlords get their money without having to evict anyone. It's a win-win situation for landlords and tenants.

Debt spiral danger
Critics see red flags for consumers who use these services. Rent payments involve large sums of money. And according to the Canadian Payroll Association's 2016 survey, 48 per cent of employees would face financial difficulty if their paycheque was delayed by just one week.

So while putting your rent on your credit card provides helpful bridge financing if used sparingly, it could lead to severe debt problems should tenants become dependent on credit to cover their rent.

In fact, 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."

Adeyemi shares a similar view.

"I could see people using the services as a crutch to live paycheque to paycheque similar to payday loans," he said. "It all comes down to the individual and whether they have discipline to use their credit card responsibly."

McLeod said RentMoola's "target audience is young professionals who are tech-savvy and understand the value of being able to pay their rent online. 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, because that payment is often heftier than successive payments. This was the case when McLeod himself was 26 and had to come up with a total $4,000 in first and last month's rent, deposit money and fees before he could move into his rented Toronto condo.

Enticing credit card rewards
RentMoola's main pitch seems to be the lure of racking up credit card points. Its tag line is "Rent with benefits," and the website's home page headline reads "Start paying rent easily with your credit card, chequing account and more."

But in most cases, the rewards are not worth the fees. The average $1,900 monthly rent in Vancouver for a one-bedroom apartment would incur an extra $52.25 user charge. You'd have to have a rewards card that earns you a higher rewards percentage than the service fee - so if the service fee is the maximum 2.75 per cent, your credit card will have to earn you at least 3 per cent back in rewards.

Of course, RentMoola or Plastiq could save you some money.

"You'd save the cost of postage and envelopes if you pay your landlord by cheque or money transfer if you pay your landlord electronically," said Adeyemi.

Plus, there are other benefits to using the services. For example, RentMoola gives you access to hundreds of limited offers from top brands, including Starbucks, Zipcar and UberEATS, to help sweeten the deal.

"RentMoola's rewards plus perks could compensate for the 2.75 per cent cost," Jason Heath, a fee-only planner and managing director at Objective Financial Partners, said in an emailed response to questions.

"But like any financial decision, you need to look at your own situation and decide if it's a benefit worth the risks," he said. "If you're looking to earn rewards and save on fees, you might consider using debit, which comes with lower fees, instead of your credit card."

See related: 4 ways to maximize cash back rewards cards; Should you downsize your home if you're in debt?; Securing a rental when you have credit issues 
Updated May 16, 2017

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