Rent now, pay later offers renters a little more power — at a price
The first of the month can create anxiety for millions of renters across America. For Chauncy Williams, a school career counselor, it meant struggling to pay rent when his wife lost her insurance job a few years ago. The couple shares a two-bedroom apartment in Muskegon, Michigan. To help make payments on time, Williams turned to a rent-splitting service – one of the many “rent now, pay later” companies that let Americans pay their rent in installments. “(It helps) when a rainy day comes up, a $2,000 emergency comes up,” Williams told CNN.
“A lot of times people live check to check, and if they miss a payment, their life spirals out of control.” More than half of the 45 million US renter households are considered cost-burdened, meaning they spend at least 30% of their income on housing, according to Census Bureau data. Similar to Buy Now, Pay Later, rent now, pay later programs pay landlords in full at the top of the month and allow renters to pay back the company in installments. The rising demand for rent now, pay later underscores America’s deepening affordability problem after years of stagnant wages and higher prices.
Many families already face a cash crunch – a situation that could worsen if the price for goods, including gas, rise because of the war in Iran. “Rent is the largest expense for millions of households. The fact that people are turning to installment plans to split it up is worrisome,” said Ted Rossman, principal analyst at Bankrate. “It shows people may not have the savings or cash flow.” While rent has fallen from its 2022 peak, the national median still stood at $1,357 last month, according to Apartment List data. That’s nearly $200 more than the cost pre-pandemic, thanks in part to low inventory.
Affirm, a leading Buy Now, Pay Later company, recently launched a pilot program into the rental market. It joins companies like Livble, Qira and Flex – the latter being one of the biggest platforms with about 1.5 million customers each month. Economists say there is some appeal to rent now, pay later platforms: They can offer more financial flexibility and be used as a budgeting tool. However, the services come with their own price tags. If a borrower fails to pay, some platforms cut them off until the loan is paid in full. Some platforms don’t charge late fees or interest on payments but do require a monthly fee.
Flex, for example, charges $14.99 in membership plus 1% of the payment per month. If a user pays the national median rent of $1,357, that would equal $29 in fees on top of rent each month. Economists have expressed concern regarding the additional costs of these services, noting the financial risk for those already struggling to get by. “If you’re someone who’s burdened by paying more than half of your income to rent, then every dollar is tight and the prospect of paying $20 to $30 a month as a fee to pay your rent is just one more lump to take that makes life really difficult and unaffordable,” Adam Rust, director of financial services at Consumer Federation of America, said.
A greater affordability problem As housing costs stay high, demand for rent now, pay later will likely only increase. Katrina Greene is senior vice president at property management company Gray Residential in Indiana, with more than 2,000 units from South Bend to Evansville. Since integrating Flex into Gray’s system more than three years ago, she’s seen a significant rise in tenants paying with the service. Households using Flex to split rent doubled from 4% to 8% from January 2024 to this year, she said. The company has received $5 million in payments made through Flex since 2022.
And while the service has helped by increasing tenant renewal rates, Greene said the number of renters behind on payments is still high. It’s a sign of a larger, more expensive problem with the cost of living. A Washington Post-ABC News-Ipsos poll released last month reported that 56% of Americans say healthcare is unaffordable, while 45% said the same about both groceries and utility bills. “We have a sizable amount of people who are struggling,” Rust said.
“The idea that we’re seeing private equity investing in fintechs (like Affirm and Flex) to provide this to millions of people says that we have a fundamental affordability problem.” While the rising cost of living has many Americans turning to creative solutions, even the companies offering rent now, pay later services acknowledge that they are not a permanent fix. “We should be very clear that Flex cannot solve the affordability crisis,” Ryan Metcalf, Flex’s vice president of public affairs, told CNN. “We’re not a solution to building supply of affordable homes or increasing wages.”