Pay rent with a credit card? Think again!

In today’s finshots, we see why ICICI Bank’s decision to add an additional fee to “credit card rental payments” could be a sign of things to come

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The history

Have you ever used apps like Cred, PayTm or NoBroker to pay your rent?

If so, then you probably used your credit card to complete the transaction.

But here’s the thing – if you’ve used an ICICI Bank credit card, you may soon need to reconsider your strategy. Because on October 20th they will ask you for it pay a 1% fee on all rental payments.

But why is this happening now? Doesn’t the ICICI Bank earn money just by paying rent?

do they. But there are some caveats.

So let’s take it from above, using Cred as an example.

Now if you use Cred to pay rent, they would charge you somewhere nearby 1-1.5% to facilitate this transaction. And I know what you’re thinking – Why would anyone pay extra just to pay the rent – Why not just pay direct and get it over with?

It’s fast, clean, and something we’ve been doing for ages.

But… Cred’s fee might not be so bad after all. First of all, banks offer cashback and rewards when you use their credit cards. That way, they can encourage you to take out that short-term loan or loan. Sometimes the cashback can be up to 3%. Alongside this, you can also attach rewards – like cred coins. You can then use these coins to buy discounted products – snacks, headphones, pillows or sneakers.

Add to that the fact that credit is “credit”. Depending on your billing cycle, you may be eligible to borrow money interest-free for 18-45 days.

So if you’re short on cash, this feature can be extremely handy.

Also, credit cards usually waive their annual fee if you spend a certain amount each year. And because rent payments are high-value, recurring transactions, people can easily exceed those spending targets. Put it all together and you could argue that the 1-1.5% Fee can be worth it.

Either way, Cred will charge you that fee, but the company will Not actually pocket all the money. Sure, it can show up as “income” in their financial statements. But they have to pass it on to many intermediaries in the payments ecosystem. Your bank gets its share. Payment gateways also get a small piece. And Cred pockets the difference if there’s anything left.

So yes, ICICI Bank already has a goal to make money.

But as we noted earlier, there are limitations. You see, a credit card was originally designed to encourage consumers to spend more. And it was designed primarily for consumers to do business with merchants. So if I were selling electronic goods in my store, I could potentially persuade you to buy an iPhone by reminding you that you have a credit card. By telling you that you can spend a little more money even if you’re short on cash right now.

But when you pay rent with a credit card, you’re no longer dealing with a merchant, you’re sending money to your landlord. It’s as good as using your credit card to claim a cash advance.

And banks aren’t very comfortable with cash advances. If you use your credit card at an ATM and withdraw cash, know that there is a 3% fee. And there is no grace period or bonus points. Interest is calculated the moment you withdraw the money. Now banks are adding these restrictions because they think you’re desperate. It’s almost like a personal loan and they are careful about using your credit card in this way.

However, if you use a credit card to pay for rent on Cred, you’re still doing the same thing in a roundabout way without having to deal with all the restrictions.

let me explain. Imagine you want to exploit this gap. You just pretend you have a landlord or get a friend to pretend to be one. You then make a payment to that friend, mark it as “rent,” and use your credit card to send money to their account. They could then use their debit card at the ATM, withdraw the cash and return it directly to you.

See – you’ve used a credit card for an instant, interest-free cash withdrawal!

It’s a cash advance without all the pesky restrictions.

And most platforms won’t even ask you for one rental contract. So it’s really easy to get away with it.

But it seems banks have finally realized the real risks involved with these types of payments. Perhaps the ICICI Bank is just the first of many. And if this becomes the norm, “paying rent by credit card” could be a thing of the past.

It’s possible that the extra cost just isn’t worth it anymore.

Until then…

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