Pay-Later Services Work For Some Renters But They Are Not a Permanent Solution

Buy now, pay later plans have become widely popular in the retail industry, but since the pandemic, the model has seeped into other industries as well. Such plans have become an option for paying off necessities like rent as well, with several platforms offering a line of credit to renters. Tech-savvy renters can easily leverage such plans that break up their rent, but doing so especially on something as crucial as housing comes with a catch after all.

What are Pay Rent Later Services?

Companies like Flex, Best Egg, and Jetty are digital platforms that offer services allowing renters to pay in installments. For instance, Flex partners with thousands of US rental properties offering their line of credit, which the company claims can help soften the blow of high rent.

What Flex does is that it prevents renters from paying their rent as a lump sum amount at the beginning of the month by breaking up their rent into smaller chunks which are paid through the month. This can help renters who are facing a financial crunch to avoid late fees on rent. Renters whose paydays fall in the middle of the month can also benefit from such plans.

How Does Rent Instalment Work?

Eligible renters can apply for a line of credit or loan from one of the companies offering such services given that their property managers/landlords agree to it. Once their application is approved, the company pays part or all of the rent on the first of the month by using their line of credit or loan. Then, the renters pay back the amount they borrowed in one or more installments by the end of the month.

However, according to Jackie Veling of Nerdwallet, while renters typically don’t pay interest traditionally, the service isn’t free as well. In the case of Flex, it charges a monthly membership fee of $14.99 plus a bill payment fee of 1% of the total rent. Thus, Veling explained in her report that if the total rent is $1,500, renters will pay $30 in fees. Thus, for those who pay Flex in 25 days, their annual percentage rate of charge will be 30%. This is slightly below the 36% affordability ceiling for interest on a loan, according to consumer advocates.

Burden of Rent in The U.S.

According to a report by the Harvard Joint Center for Housing Studies, a record half of all American renters were spending 30% or more of their income on rent. Furthermore, an estimated 12.1 million Americans were spending over 50% of their income on rent and utilities.

These renters are considered cost-burdened or severely cost-burdened, in the case of the 50% spenders, as per the federal guidelines.

Thus, paying rent in installments or paying rent later using a line of credit has become more appealing to several American renters. However, Joanne Danganan, an accredited financial counselor mentioned in Veling’s report that these tools can help people temporarily but they should not be a permanent solution.