Private sector lender, ICICI Bank, has been sending notifications to its credit card users that the bank will soon start charging charge 1 per cent fee for paying rent via credit cards.
The domestic lender is informing its customers through an SMS, which reads: “Dear Customer, starting 20-Oct-22, all transactions on your ICICI Bank Credit Card towards rent payment will be charged a 1% fee.”
It should also be noted that no bank nor credit card company was levying a such fee on such transactions and ICICI bank is the first to introduce a fee on rent payments made through its credit cards. However, others are also expected to follow the trend soon.
Even though ICICI Bank has still not revealed the reason for the fee being charged, it is likely to curb the misuse of rent payments for credit rotation.
Who will be impacted?
Tenants who use credit cards to pay rent via credit cards through platforms like Cred, Paytm Mygate, RedGiraffe and Magicbricks are likely to be impacted. Platforms facilitating such transactions usually charge a convenience fee on each transaction.
Since the merchant in the rent payment feature is the landlord, who would not pay a fee for receiving rent, these platforms charge users paying rent in the form of a transaction fee. The ICICI Bank’s 1 per cent rent fee charge will be in addition to the transaction fee that online platforms impose.
In addition to this, the ICICI Bank, in a blog on its official website, also shared an article explaining why one should avoid paying rent using credit card.
In this blog, the bank explains how people are using credit cards for all kinds of purchases, which has now become a common occurrence, instead of major purchases. Nowadays a credit card is used for grocery shopping to cab payments.
The bank also listed a few reasons why, which are mentioned below:
Credit score might take a hit: The biggest drawback of using a credit card to pay rent is that one’s credit score could take a dip if one misses a payment.
In addition to this, if the user’s credit score takes a hit, it would be difficult for them to secure loans further down the line.
Impact on Credit Utilisation Ratio: With rent being a major expense of one’s regular expenses, it highly impacts their credit utilisation ratio. And if they get into the habit of paying rent using their Credit Card every month without paying the bill on time, their credit balance would be affected.
In addition to this, if the ratio is over 30 per cent of the prescribed credit limit, their credit score will plummet.
Credit Cards higher interest rates: Despite getting an interest-free repayment period, the Interest on credit cards is usually on the higher side if one misses his payments on the deadline. Because of this, one could ultimately end up paying much more than what they would have paid using a debit card or cash to pay the rent.
Possibility of maxing out Credit Card limit: There’s also a possibility of maxing out one’s credit card if one keeps on paying your rent through it. When a credit card has been maxed-out, one can no longer use it to make any payment, even the minimum payment on a credit card, and their credit score would plummet further if they keep maxing out a credit card.
Conclusion: If one is paying their rent using a credit card and is committed to timely repayments, they can easily continue using the card regularly and also get reward points with every to spend their credit card, even on paying rent.
Their credit score would also improve. Ultimately, making the repayment on the date is the most important as it would be wrong to completely stop you from using credit cards for paying your rent.
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