With a lengthy waiting period for the completion of a Build-To-Order (BTO) flat, getting a BTO has long been in the planning for many Singaporean couples out there. However, there is still a great number of Singaporeans that choose to rent a flat. If you’re one of those who fall into this category, you might have thought of this: How should I pay for my rent? Here’s what we will be discussing; should you pay for your rent with a credit card?
Several startups like CardUp and iPaymy, have gained much attention from the public; by enabling customers’ usage of their credit cards to pay for big-ticket items such as rent. In turn, customers get to earn miles on these payments. While this does sound enticing, paying for your rent with your credit card could turn out to be a costly move that does not yield many benefits. Instead, you are more likely going to lose money by doing so, even after considering any rewards to be earned.
Should You Pay Rent with Your Credit Card?
It is not advisable to use your credit card to make rent payments in most scenarios, as the cons of doing so offset any benefits to be earned. For instance, the surcharge that comes along with every credit card payment is on average, 2.6% of the total payment amount. Assuming a rent amount of $2,000 each month, you will hence expect to pay an additional fee of $52; when you accumulate these checkout fees, that is no small cost at all! Moreover, any late payments for your credit card bill will incur additional charges which could go as high as 25%. Upon taking a good look at these costs, you will realize that rewards earned from using your credit card become way less prominent.
|
Platforms |
Category |
Transaction Fee |
|
CardUp |
Visa, MasterCard |
2.6% |
|
International credit cards |
3.3% | |
|
iPaymy |
Visa, MasterCard |
Current Promo: 1.89% Usual: 2.25% |
|
International & American Express credit cards |
3.3% |
One big benefit of using your credit card for rent payments is the rewards from credit card usage. Although the rewards to be earned can be rather attractive, they often do not actually compensate for the transaction fees charged by CardUp or iPaymy. When looking at the best miles credit cards out there, 1.2 miles are earned per $1 spent, where 1 mile is equivalent to $0.01 for economy flight tickets. This means that less than half of the additional cost is recompensated with mile rewards. Also, even though cashback credit cards are likely to come with higher reward rates ranging from 3% to 5%, there is often a limit on the number of rebates to be earned in a given month, which makes them not the best choice to pay big-ticket items.
Exception: Pros of Using Your Credit Card
An exception would be credit card sign-up bonuses. For some credit cards, a specific level of spending must be hit for users to qualify to receive their sign-up bonuses. In this case, rent payment by credit card would be beneficial. For example, if the fee you need to pay is below the bonus amount which usually averages about $100 to $200, then you will still stand to gain from using your credit card to pay your rent.
Let’s take a look at this scenario for Users of the UOB PRVI Miles American Express Card; upon signing up, users are entitled to receive 10,000 welcome miles with a minimum of $6,000 expenditure in the first three months. Hence, a monthly $1,000 rent expenditure on your card for these first three months would enable you to hit the minimum target with more ease and hence earn the miles reward. With that said, it’s necessary for you to take note that earning your bonuses with traditional purchases will still prevail over making rent payments with your credit card, as the latter is likely to eat into your total returns.
Don’t Max Out Your Credit Card
For those concerned about your credit rating, be careful to not max out your credit card with rent payments! Credit bureaus use “credit utilization’ to calculate credit scores, where the percentage of total credit you use monthly is measured. There is a general consensus that those who consistently max out their credit limit deserve lower credit scores than those who do not, where most experts conclude that using over 60% of your available credit limit will likely hurt your credit rating. As such, when making a decision on whether to pay for rent using a credit card, it is good to take your credit score into consideration.
Conclusion
For most day-to-day purchases made, using your credit card for payment is usually a good choice as there isn’t any difference between paying by cash or card. There, however, is a disparity when it comes to larger payments like rent and income tax; as a cash payment for rent would preclude the transaction fees charged by credit card companies. As a result, you need to make an informed decision about your choice of payment for rent. Don’t be easily swayed by the numerous sign-up bonuses that are offered by credit card companies, but make sure to be aware of your own spending power. In most situations, it is more beneficial to pay for rent by the traditional methods of payment such as cash or cheques, where payment by card may just inflate your costs and serve you no good.
This discussion serves as helpful knowledge for those seeking to make more intelligent financial decisions. As mentioned, many credit card companies and for-profit payment platforms can often put forth a tempting yet false display; where they entice people with their bonuses and miles rewards. However, it is vital that people are aware and informed of the various terms and conditions that would render them eligible for these proposed rewards. For all financial decisions small or large, always exercise care to do diligent research, or make the effort to learn from others who are more financially knowledgeable; a little finance knowledge goes a long way.
