Renters use ‘rent now, pay later’ services to manage monthly payments, but fees raise concerns

By KEN SWEET and CORA LEWIS

New York (AP) — Rent can take a significant chunk of a paycheck at the beginning of the month, prompting more renters to explore financial solutions that allow them to split the bill — for a fee.

With housing costs on the rise and income becoming less predictable, especially for lower-income and gig economy workers, “rent now, pay later” services have gained popularity. According to the Bureau of Labor Statistics, rents have increased nearly 28% over the past five years.

Companies like Flex, Livble, and Affirm offer options to break down rent payments into multiple installments, claiming to help renters manage their cash flow. However, consumer advocates caution that these services often function as short-term loans, adding fees to already tight budgets and sometimes carrying high effective interest rates — raising concerns about whether they alleviate or worsen financial stress.

Kellen Johnson, 44, began using Flex to split his $1,850 rent payments two years ago. Instead of paying the full amount on the first of the month, Johnson would pay $1,350 on that date and $500 on the 15th. Flex charged him a $14.99 monthly subscription fee and 1% of the total rent, amounting to over $33 in monthly charges.

Johnson, who was working as a delivery person for Amazon at the time, found the service convenient due to his fluctuating paychecks.

Approximately 109 million Americans, or about 42.5 million households, rent their homes in the United States. Many of these households spend 30% or more of their monthly income on rent, making them “cost-burdened,” according to the Census Bureau.

Rent now, pay later services typically work by paying the full rent to the landlord on time and allowing the renter to repay in multiple installments throughout the month. By spreading out payments, these companies argue that renters can have more cash available.

However, these services often come with fees that should be viewed as a cost of credit. For example, Johnson’s $33.49 fee for a $500 loan over two weeks equates to an effective annual percentage rate of 172%.

“Renters should be cautious of financing providers working with landlords and claims of no fees or interest,” said Mike Pierce, executive director of Protect Borrowers.

Flex, launched in 2019, is one of the largest companies offering rent payment splitting. The company reports that 1.5 million customers use its services to send about $2 billion in rent payments monthly.

Most Flex customers are lower-income renters with weaker credit profiles, according to the company. The average user has a credit score of 604, with about one in three customers holding multiple jobs. Livble, another service, charges renters a fee ranging from $30 to $40, resulting in effective annual percentage rates between 104% and 139%.

Affirm, a buy now, pay later company, is testing a program to allow customers to split rent into two payments without charging renters interest or fees. Meanwhile, landlords are increasingly accepting credit cards for rent payments, with Bilt targeting renters through its credit card services.

While these financing options provide flexibility, economists and renters’ advocates express concerns about affordability in the rental market. If these options become more prevalent, there is a fear that rents could increase as landlords consider renters’ weekly cash flow rather than the local rental market.

Ultimately, these solutions do not address the underlying issue of rental affordability. Consumer advocates worry that the rental market may adopt practices seen in the credit card industry, potentially leading to higher rents for tenants.

RealPage, the parent company of Livble, settled allegations last year regarding landlords colluding to raise rents, highlighting the potential risks associated with flexible rent payment services.

Economics Writer Christopher Rugaber contributed from Washington.