As a landlord, your main goal is to facilitate a steady stream of rental income. With more and more payment tools in the marketplace, many landlords are becoming more open to accepting credit card payments for rent.
Like every other financial decision you make, letting your tenants pay their rent via credit card has both benefits and drawbacks. On the one hand, credit cards can provide a convenient way for tenants to make on-time rent payments even if they’re short of cash. That means no chasing them down or taking their word that the check “is in the mail.” The only real downside of credit card payments is that there is the risk of chargebacks to the landlord.
So, is it worth allowing credit card payments for rent? We say absolutely! In fact, in some cases, you may have no choice. In New Jersey during the pandemic, for example, a bill was passed that requires landlords to accept rent payments on credit cards. But even if it’s not a requirement in your state, the emergence of so many platforms that help tenants pay rent with cards is swaying many landlords to consider it.
Let’s do a deeper dive and explore some of the advantages and disadvantages of updating your payment options.
Pros of accepting credit cards
If you’re more of a cash or check person, the idea of introducing a credit card option to your tenants might seem daunting. But here are a few key reasons why you might want to give it a try:
Credit card payments make life easy for tenants. With credit cards, tenants can set up automated payments (as they likely do with most of their other bills) so that you’ll be paid on time every month. Plus, people hate writing checks. One study by the Federal Reserve Bank of Atlanta found that consumers only wrote checks for 7% of all transactions in 2018 (averaging about three checks per month) — and probably not by choice.
It’s a good backup when funds are low. Giving tenants another payment option in case they are short on cash increases the likelihood that you’ll get paid on time. And, even if they are shelling out a fee to the credit issuer, it’s usually less than the late fees you might charge.
The tenant incurs the fees. The average cost of making a rent payment with a credit card is 2.9% of the total amount (but may be less depending on the platform) – and the renters pay that.
It can save you time and hassle. If you set up a credit card payment option, there’s no need to knock on doors to collect envelopes or hunt down the mail carrier when you’re waiting on checks. Plus, you don’t have to go to the bank afterward to make the deposit.
Cons of accepting credit cards
Because accepting credit card payments is fairly new territory for landlords, it’s still not a perfect system. These are some of the potential drawbacks to think about:
Chargebacks. Because credit card companies offer a lot of consumer protections, there is the possibility that a tenant might dispute their transaction and cancel their rent payment after the fact, leaving you without your rent and incurring a chargeback fee. In other words, if a tenant successfully reverses their payment, that money will disappear from your account.
Traditional credit card processing will have a cost. Whether you decide to set up a merchant account or use a third-payment processor (like PayPal or Square) to accept payments, you’ll have to pay a processing fee. Note: If you decide to use a third-party rent platform like Plastiq or even Venmo, the credit card fee is passed on to the tenant.
There is a digital learning curve. If you’re not someone who uses payment apps, mobile pay, or other fintech tools on the regular, you might feel a bit intimidated to get started with an online service.
A slight delay in payment. Unlike getting a wad of cash in an envelope, depending on how fast credit processing goes, it could take a couple of business days to actually receive payment in your account. (Of course, if you’re collecting checks, those take time to clear anyway, so this isn’t much different.)
There are reward opportunities for tenants and landlords
Though using credit cards for rent payments has typically been discouraged by financial experts because of the additional fees and the potential to get into debt trouble, there have been some innovative solutions in recent years that are turning the tables on that notion.
Third-party services like Plastiq and even new rewards credit cards are removing that “last-resort payment option” stigma and focusing on making it worthwhile for tenants to pay and landlords to accept credit cards for rent. For example, the Bilt Mastercard was launched this year specifically for renters. Not only does the card waive the usual fee for paying rent on the card, but it also incentivizes cardholders to swipe each month with a full-fledged rewards program (one point for every dollar spent on rent) and reports positive payment behavior to the credit bureaus, which can help young renters build their credit.
But there can be benefits for tenants paying rent with other cards, too. For example, if someone is trying to earn a huge sign-up bonus that requires a high minimum spend in the first three months, it could be worth the fee to pay rent with the card in order to qualify for a ton of points valued at hundreds of dollars.
For landlords, there really isn’t much of a downside to accepting credit card payments, especially when their tenants are being rewarded for their rent payments without incurring any extra fees.
The bottom line is that you want to make it as easy as possible for your tenants to pay you. As consumers get used to more digital payment options and continue to move away from cash and check, you want to be accommodating and give renters a choice. Accepting credit card payments is a no-brainer.