Rent Now, Pay Later: A Growing Trend Masks High Costs for Struggling Renters
As housing costs surge, a growing number of Americans are turning to “rent now, pay later” services to ease the burden of monthly payments. But this financial solution often comes at a steep price, raising concerns about whether it alleviates financial strain or exacerbates it.
Rent can consume an entire paycheck at the start of the month, prompting many to seek alternatives to traditional payment methods. These services, which have emerged over the past few years, allow renters to split their rent into multiple installments – for a fee. According to the Bureau of Labor Statistics, rents have jumped nearly 28% in the past five years, fueling the demand for these flexible payment options.
Companies like Flex, Livble, and, more recently, Affirm, market their services as a way to improve cash flow management. However, consumer advocates caution that these products often function as short-term loans, layering additional fees onto already stretched budgets and, in some instances, carrying effective interest rates exceeding 100%.
Kellen Johnson, a 44-year-old resident of Sacramento, California, began using Flex two years ago to manage his $1,850 monthly rent. Instead of a single payment, he now pays $1,350 upfront and $500 on the 15th of the month. This convenience comes at a cost: a $14.99 monthly subscription fee, plus 1% of the total rent, totaling $18.50, bringing his monthly charges for the app to over $33. Johnson, who previously worked as a delivery driver for Amazon, found the service valuable due to the unpredictable nature of his income. “It was an expense that I was incurring, but I went ahead as it was more convenient,” he said. He now works as a driver for senior citizens.
Approximately 109 million Americans, or 42.5 million households, are renters, according to recent data. The Census Bureau estimates that a significant portion of these households – those paying 30% or more of their monthly income on rent – are “cost burdened.” This means they have limited financial flexibility for future expenses or wealth building.
How ‘Rent Now, Pay Later’ Services Work
These services typically operate by paying the landlord the full rent amount on time, while the renter repays the company in installments throughout the month. Proponents argue that spreading out payments can provide renters with more immediate cash on hand.
However, the fees associated with these services are a significant concern. Consumer advocates warn that these fees should be viewed as the cost of credit. In Johnson’s case, the $33.49 charge for a two-week, $500 loan equates to an effective annual percentage rate of 172%, calculated using standard consumer lending formulas.
“Renters should be skeptical of any financing providers that have partnered with a landlord and be skeptical of anything that sells itself as no fees or no interest,” cautioned Mike Pierce, executive director of Protect Borrowers, a consumer advocacy group. Pierce, a former official at the Consumer Financial Protection Bureau, recently co-authored a report examining the industry.
Industry Growth and Key Players
Launched in 2019, Flex has quickly become a leading provider of rent-splitting services. The company reports that its 1.5 million customers now process approximately $2 billion in rent payments monthly, and many large landlords accept Flex as a payment option. Flex primarily serves lower-income renters with weaker credit profiles, with a median credit score of 604 among its users. The company states that roughly one in three customers hold multiple jobs to make ends meet, and the average customer utilizes the service three to four times per year. Johnson, however, uses it every month.
Livble offers a different fee structure, eschewing a subscription fee in favor of charges ranging from $30 to $40 per transaction. Depending on the deferral period, Livble’s fees can result in effective annual percentage rates between 104% and 139%.
Affirm, a well-known “buy now, pay later” company, recently announced a pilot program allowing select customers to split rent into two payments in partnership with Esusu, a company focused on reporting rent payments to credit bureaus. Affirm currently does not charge renters interest or fees, but may charge landlords fees for the service.
Alternative Options and Growing Concerns
Beyond these dedicated services, an increasing number of landlords are accepting credit card payments for rent. Bilt, a credit card startup specifically targeting renters, has gained traction, and some tenants utilize existing credit cards to earn rewards or points. However, landlords often pass on credit card processing fees to tenants, typically ranging from 2.5% to 3.5% of the rent. For a $1,500 monthly rent, this translates to $37.50 to $52.50 in fees – a cost comparable to services like Livble and Flex.
Economists and renter advocates argue that none of these financing options address the core issue of rental affordability. They fear that widespread adoption of credit cards or flexible payment plans could lead to further rent increases, as landlords begin to factor in potential weekly cash flow rather than broader market conditions.
“Merchants already pass along credit card processing costs to customers in the form of higher prices,” one analyst noted, “and the rental market could adopt similar patterns.” The concern is amplified by the fact that Livble is owned by RealPage, a company that recently settled allegations of using its algorithm to facilitate collusion and inflate rents.
The rise of “rent now, pay later” services highlights a growing desperation among renters struggling to keep up with soaring housing costs. While these services may offer temporary relief, they often come with hidden costs that could deepen financial hardship. The fundamental challenge remains: ensuring access to affordable housing for all Americans.
