There was a time when only established businesses could accept credit cards. Fortunately, those days are long gone.
Today, even individual landlords can accept rent by credit card. (Hint hint: landlords can accept rent by credit card and eCheck/ACH payments for free here on SparkRental.com.) It’s fast, simple, and easy enough for the most technology-allergic renters to handle.
After all, who hasn’t paid for something online with a credit card? It’s a lot faster than writing – and mailing – a check!
But as Jeff Goldblum famously cautioned in Jurassic Park, just because you can do a thing, does that mean that you should?
Here are the advantages and risks that come with accepting rent via credit card, for landlords curious about this relatively new rent collection option.
Advantage 1: Flexibility for Renters Short on Cash This Month
We’ve all had months where cash has been tight. It’s not a great feeling, but it’s certainly one we can all relate to.
And on those (hopefully rare) months, what’s our saving grace? Credit cards.
Accepting rent by credit card means tenants suddenly have no excuses left about being short that month.
Advantage 2: It’s Cheaper for the Renter than a Late Fee
Imagine it’s the fourth of the month, and rent is about to become late. As a renter, you can either take a 5-10% hit on the late rent fee… or suck up the 2.99% (or 3.5% or whatever the vendor charges) fee to pay their rent by credit card.
Nor is that fee all downside, either. You probably get 1.5-2% back in the form of reward points, so the effective cost may be only 1% of the rent.
What does this mean for the landlord? Not only is there no excuse for late rent, but it’s actually cheaper for the tenant to pay their rent by credit card than suffer a late fee.
Advantage 3: It’s Free for the Landlord, and There’s a Free Alternative for the Renter
It’s all upside for the landlord. Completely free.
In both our rent payment platform and several of our competitors’, tenants have another option to pay their rent electronically. A free option.
That free alternative? Sending the rent via ACH.
For anyone not in banking, ACH stands for “automated clearing house” (an opaque a banking term as they come), but simply means an electronic transfer from one bank account to another.
So, the tenant can simply send cash electronically, for free, rather than whipping out their credit card.
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Advantage 4: It’s Faster for Everyone than Checks
Digging out a checkbook and writing a physical check, sealing and addressing an envelope, then finding a mailbox to drop it into?
It’s vintage 20th Century. Outdated. Labor-intensive.
Then everyone waits while it travels physically in the mail. And that is if it does not get lost in route. Not to mention, providing the tenant the age-old excuse: “Oh, yeah, uh, the check’s in the mail!”
The landlord has to check their mail, then deposit it into their bank account. And pray it clears.
This point is already starting to get belabored, but you get the idea: paying by credit card is faster for everyone.
Advantage 5: Direct Deposit into the Landlord’s Account
All right, so this is related to Advantage 3 above.
Still, it’s worth mentioning: as a landlord, you don’t have to actually do anything. You get an email notification that the rent was deposited in your account.
Done. Finished. Kaput.
Risk 1: The Slippery Slope of Paying by Credit
Here’s a shocker for you: not everyone is particularly responsible with their money.
If a person can put literally every expense in their life on their credit card, but doesn’t have the fiscal responsibility to pay that balance down… well, we all know how that can end.
Paying for bills on credit can open the door for irresponsible spending. And that risk accelerates when you talk about letting people pay their largest bill on credit.
Risk 2: Not True Automation – The Payment Must Still Be Initiated by the Renter
While recurring rent payments can be set up by renters for ACH, card processors don’t allow recurring credit card payments to non-businesses (read: individual landlords).
That means that paying the rent still requires action by the tenant.
Landlords do have another option (at least on SparkRental): they can have the rent deducted directly from the tenant’s paycheck. Thus, the tenant is no longer required to do anything to pay the rent; it’s completely automated.
So… Should I Accept Rent by Credit Card?
While offering ACH and credit card payments is a great option for low-risk renters with strong credit, high-risk tenants with bad or no credit may be better off with the rent deducted directly from their paycheck.
Or declined entirely, if their credit report is too ugly.
In the 21st Century, I’m a huge believer in streamlining and automating every process possible in property management. Nowhere is that truer than with rent collection.
Checks are slow and may bounce. Cash requires receipts and creates a higher audit risk.
Whether you use our online rent collection service or another service on the market, I do truly believe that electronic rent collection is a no-brainer for landlords. I collect rent electronically with my own properties, and there’s nothing better than an email popping into your inbox saying “John Doe Renter sent you $1,000 in rent, it’s deposited in your account.”
Being a landlord comes with enough hassles; automating your rent collection is a simple way to reduce work and boost the chance of actually seeing the rent!
Do you accept rent electronically? Why or why not? What would make an electronic rent collection system perfect for you?