Renters Use 'rent Now, Pay Later' Services To Manage Monthly Payments, But Fees Raise Concerns

Rent tin eat up an full paycheck astatine nan commencement of nan month, truthful a increasing number of renters are turning to a financial merchandise that promises alleviation by letting them divided nan measure — for a price.

“Rent now, salary later” services person emerged complete nan past fewer years arsenic housing costs climb and paychecks turn little predictable, peculiarly for lower-income and gig-economy workers. According to nan Bureau of Labor Statistics, rents person jumped astir 28% successful past 5 years.

Companies specified arsenic Flex, Livble and Affirm opportunity breaking rent into aggregate payments tin thief renters negociate rate flow. But user advocates pass that nan products typically usability for illustration short-term loans, layering fees onto already strained budgets and, successful immoderate cases, carrying triple-digit effective liking rates — raising questions astir whether they easiness financial unit aliases deepen it.

Kellen Johnson, 44, started utilizing Flex to divided up his rent payments astir 2 years ago. Instead of paying nan full $1,850 of his rent connected nan first of nan month, Johnson would salary $1,350 connected that date, and $500 connected nan 15th. For nan service, Flex collected a $14.99 monthly subscription fee, arsenic good arsenic 1% of nan full rent, which for Johnson was $18.50, bringing his monthly charges for nan app to much than $33.

Johnson said he was consenting to salary nan other costs successful portion because he worked arsenic an independently contracted transportation personification for Amazon astatine nan time, and his paychecks could vary.

“It was an disbursal that I was incurring, but I went up arsenic it was much convenient,” said Johnson, who now useful arsenic a driver for elder citizens successful Sacramento.

Roughly 109 cardinal Americans, aliases astir 42.5 cardinal households, are renters successful nan United States. The Census Bureau estimated successful 2024 that a ample stock of those households salary 30% aliases much of their monthly income connected rent. The bureau considers specified households to beryllium “cost burdened,” meaning rent consumes truthful overmuch of their income that they person little expertise to scheme for early expenses aliases build wealth.

Rent now, salary later services mostly run nan aforesaid way: The institution pays nan landlord nan afloat rent erstwhile due, and nan renter repays nan institution successful 2 aliases much installments complete nan people of nan month. Because rent tin beryllium specified a ample expense, nan companies reason that spreading payments retired tin springiness renters much rate connected hand.

Many of these services travel pinch fees. The fees tin beryllium system otherwise but should beryllium mostly thought of arsenic costs of credit, user advocates warn. In Johnson’s case, he was paying $33.49 for a two-week indebtedness of $500, for an effective yearly percent complaint of 172%, erstwhile expressed utilizing modular consumer-lending calculations.

“Renters should beryllium skeptical of immoderate financing providers that person collaborated pinch a landlord and beryllium skeptical of thing that sells itself arsenic nary fees aliases nary interest,” said Mike Pierce, executive head of Protect Borrowers. Pierce antecedently worked astatine nan Consumer Financial Protection Bureau.

Launched successful 2019, Flex is 1 of nan largest companies focused connected splitting rent payments. The institution says its 1.5 cardinal customers now nonstop astir $2 cardinal a period successful rent done its system, and respective of nan country’s largest landlords judge Flex arsenic a costs option.

Flex says astir of its customers are lower-income renters pinch weaker in installments profiles. The institution reports a median in installments people of 604 among its users and says astir 1 successful 3 customers useful much than 1 occupation to make ends meet. A Flex spokesperson says nan mean customer uses nan work 3 to 4 times a year. Johnson utilized it each month.

Livble does not complaint a subscription, but charges renters a interest ranging from $30 to $40, according to nan company’s thief page. Depending connected really agelong nan renter defers portion of nan payment, Livble’s fees tin construe into effective yearly percent rates of astir 104% to 139%.

The bargain now, salary later institution Affirm said this period that it is piloting a programme allowing immoderate customers to divided rent into 2 payments. The programme is being tested successful business pinch Esusu, a institution that reports rent payments to in installments bureaus to thief consumers build credit. An Affirm spokesperson said nan institution is not charging renters liking aliases fees to usage nan product, but whitethorn complaint landlords fees. However, to entree nan Affirm service, renters must subscribe to Esusu Plus aliases Premium, which costs $35 and $50 a month, respectively.

As different financing option, landlords are progressively accepting in installments cards for rent payments. Bilt, a in installments paper startup, built its marque astir targeting renters erstwhile it launched, and immoderate tenants besides usage in installments cards to accumulate rewards aliases points.

But paying rent by in installments paper tin besides beryllium costly. Landlords typically walk nan processing fees connected to tenants. Depending connected nan paper issuer and costs network, these fees tin scope from astir 2.5% to 3.5% of nan rent. For a renter paying $1,500 a month, that translates to astir $37.50 to $52.50 successful fees — a monthly costs comparable to what services for illustration Livble and Flex charge.

Economists and renters’ advocates reason that nary of these financing options reside nan basal rumor of affordability successful nan rental market. If in installments cards, aliases elastic rent costs options go much wide used, they interest rents could emergence further arsenic landlords commencement factoring successful a imaginable renters’ play rate travel arsenic opposed to nan rental marketplace successful nan area nan building is located in.

Merchants already walk on in installments paper processing costs to customers successful nan shape of higher prices, and advocates interest that nan rental marketplace could adopt akin patterns. For example, Livble is owned by RealPage, which past twelvemonth settled allegations that its algorithm allowed landlords to collude and push rents higher.

Sweet and Lewis constitute for nan Associated Press.