Fees for “rent now, pay later” services raise concerns

Renters are turning to “rent now, pay later” services as housing costs rise and paychecks become harder to predict, but consumer advocates say the fees can leave households paying far more than the original rent. The Associated Press reported that these products, which allow renters to split payments over the month, have grown in popularity in recent years—particularly among lower-income renters and gig-economy workers.

The services generally work by having the company pay the landlord the full rent when it is due, while the renter repays the company in two or more installments during the month. Companies promoting the approach say spreading the payment schedule can help renters manage cash flow. Still, advocates warn that the installment structures are effectively “cost of credit,” with fees that can translate into very high annualized rates.

Kellen Johnson described using Flex to divide his rent payments roughly two years before the AP report. Johnson said his $1,850 rent shifted from paying the full amount at the start of the month to paying $1,350 on the first and $500 on the 15th, using the service to match the timing of his variable income. In return, Flex collected a $14.99 monthly subscription fee and 1% of the total rent—an $18.50 charge for Johnson—bringing Johnson’s monthly app-related charges to more than $33.

Johnson said he agreed to those extra costs in part because he was working as an independently contracted delivery person for Amazon at the time. He now works as a driver for senior citizens in Sacramento, California, and AP reported that he described the decision as one based on convenience. In the case AP reported, consumer advocates calculated that Johnson was paying $33.49 for a two-week loan of $500, producing an effective annual percentage rate of 172% when expressed using standard consumer-lending calculations.

Mike Pierce, executive director of Protect Borrowers, urged skepticism about the products’ sales pitch and business ties. “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,” Pierce said. AP noted that Pierce previously worked at the Consumer Financial Protection Bureau.

Flex, which launched in 2019, described itself as one of the largest companies focused on splitting rent payments. The company told AP that its system has about 1.5 million customers that send roughly $2 billion a month in rent through its platform, and it said several large landlords accept Flex as a payment option. Flex also told AP that most customers are lower-income renters with weaker credit profiles, reporting a median credit score of 604 among its users and stating that about one in three customers works more than one job to make ends meet.

Not all “rent now, pay later” offerings rely on a subscription fee like Flex. AP reported that Livble does not charge a subscription, but it charges a fee ranging from $30 to $40, depending on how long the renter defers part of the payment. Livble’s fees, AP said, can translate into effective annual percentage rates roughly from 104% to 139% based on how long the payment is delayed.

AP reported that Affirm, a “buy now, pay later” company, said in a recent pilot it is testing a program that would split rent into two payments for some customers. The pilot is in partnership with Esusu, a company that reports rent payments to credit bureaus to help consumers build credit. An Affirm spokesman told AP the company was not charging renters interest or fees to use the product, but may charge landlords fees; to access the service, renters must subscribe to Esusu Plus or Premium, which cost $35 and $50 a month, respectively.

As another option, more landlords are accepting credit cards for rent payments, and some tenants use cards for rewards or points. But AP reported that landlords often pass processing costs on to tenants, with fees that can range from about 2.5% to 3.5% of the rent depending on the card issuer and payment network—fees that AP said can amount to a monthly cost comparable to what services like Livble and Flex charge.

Economists and renters’ advocates told AP that these financing products do not resolve the underlying affordability problem in the rental market. They said that if credit cards or flexible rent payment options become more widely used, rents could rise further as landlords factor in renters’ near-term cash flow instead of the rental-market price in the building’s area. AP also cited an example involving Livble’s parent company, RealPage, which last year settled allegations that an algorithm helped landlords collude and push rents higher.