Paying rent with a credit card is a convenient way for tenants to keep up to date with rent payments. Some landlords accept credit card payments through a rent collection app, or many tenants prefer using an online third-party service to make rental payments. Whatever the case, paying rent with a credit card is a useful option for tenants to pay rent on time.
Despite the convenience of using plastic to pay rent, many tenants and landlords shy away from credit card payments. For some landlords, accepting credit card payments is a hassle they don’t need. Typically, accepting rent payments by credit card involves a processing fee ranging from 2.5% to 2.9%. At the end of the day, someone—the tenant or landlord—must pay those extra charges.
Collecting rent on time has always been a fundamental part of being a successful landlord. After all, rent is your primary source of income, and a poor cash flow due to late or missed rent payments will severely impact your business. Accepting credit card payments from tenants could be a way to help resolve some issues associated with rent collection.
What are the reasons to convince a tenant to pay rent by credit card? And once they’re on board, what are some of the best credit payment options?
Benefits of paying rent with a credit card
Tenants can benefit from using a credit card by earning rewards, getting cash back, or taking advantage of a sign-up bonus. In some cases, having the option to use a credit card can help a tenant pay rent if they’re in a tight spot. For example, the transaction fee is typically cheaper than a payday loan.
Of course, a responsible landlord shouldn’t encourage anyone to build a mounting pile of credit card debt. And using a credit card to pay for things a person can’t afford—including monthly rent—can become a bad habit. But for some tenants, a credit card is a useful stop-gap option to avoid missing a rent payment and possible eviction.
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Ways to pay rent via card
Let’s look at some viable scenarios where it makes sense to pay rent with a credit card. Some of these options are handy from the tenant’s point of view, while other alternatives are more beneficial for landlords.
Specifically designed credit cards
Rewards programs on credits cards are nothing new. However, the new Bilt Mastercard specifically rewards card members for paying rent—which is probably their most significant monthly expense. In addition to earning Bilt rewards, there are no transaction fees to worry about. If, as a landlord, you don’t accept credit card payments, Bilt will send a paper check to you.
There are other benefits to tenants for using a rewards card scheme. For example, all on-time payments are reported to credit bureaus, allowing a tenant to build their credit score.
Other rewards cards offer cash back to tenants, which can be helpful considering that the average monthly rent payment is around $1,500 a month. For example, Chase Freedom Unlimited and the American Express Cash Magnet are two examples of credit cards offering 1.5% cashback on most spending. A tenant could earn around $23 a month just by paying the rent with a card.
Using third-party companies
Several online options exist for tenants to pay rent to landlords, even if you don’t accept credit card payments. For example, Plastiq, RadPad, and RentTrack are just three companies that help facilitate rental payments.
Typically, these third-party companies charge a transaction fee for every credit card payment. This averages 2.99% on each payment. In addition, depending on the company, there may be charges for debit card payments or ACH bank transfers. Some rent payment companies also report payments to credit bureaus—handy for your tenants to boost their credit rating.
What about online rent payment solutions such as PayPal, Venmo, or CashApp? Generally, these online payment systems are not recommended for paying rent.
There is no payment protection if the tenant pays to your personal account. Also, a Venmo or PayPal business account slaps on transaction fees for every payment received. For example, Venmo was a popular way for landlords to collect rent. However, Venmo now applies a 1.9% transaction fee plus 10 cents for “goods and services.” That means Venmo is no longer a viable option for many landlords to collect rent for free.
Rent collection apps
Many of the best rent collection apps and property management software let tenants pay rent by credit card. The advantage for landlords is that apps for collecting rent online provide tenants with multiple options to pay rent. Additionally, the tenant pays any transaction fees for credit card payments, not the landlord.
Many landlords find that using a rent collection app encourages on-time rental payments. Tenants have a choice of paying by debit card, ACH bank transfer, credit card, or even eCheck. Additionally, setting up an automatic payment schedule and sending friendly reminders can help ensure that your tenants are never late with rent.
In addition to collecting rent online, property management apps often have other features for landlords. Processing rental applications online, accepting maintenance requests, collecting security deposits, and accepting flex payments via app can streamline your work.
Being a landlord can be fun—if you do it right
No matter how great you are at finding good rental property deals, you could lose everything if you don’t manage your properties correctly. Being a landlord doesn’t have to mean middle-of-the-night phone calls, costly evictions, or daily frustrations with ungrateful tenants.
Pitfalls of credit card payments
Of course, there are some pitfalls for tenants when paying rent with a credit card, and using plastic to pay rent isn’t a viable option for everyone. Here are some of the downsides of using a credit card.
- High transaction fees: Many credit cards add 2% to 3% per credit card payment. These fees can add up throughout the year and can negate any credit card rewards points.
- Interest payments: Paying rent by credit card is only worth it if the tenant clears their credit card balance every month. Interest rates on balances can escalate fast if someone can only afford to make the minimum payment. This can land a tenant in heavy debt and lead to eviction.
- Credit score: A high credit utilization ratio can negatively impact a card user’s credit score. Constantly adding thousands of dollars in rent on a credit card can push up the ratio over the ideal 30%.
There are many advantages for landlords if tenants have the option to pay rent by credit card. Typically, tenants who can pay rent using a credit card pay rent on time, thus improving a landlord’s cash flow. In many cases, the tenant also benefits because they can earn extra credit card rewards.