Employers use ‘hire now, pay later’ services to manage monthly payments, but payments raise concerns
By KEN SWEET and CORA LEWIS
NEW YORK (AP) – Rent can eat up every paycheck at the beginning of the month, so a growing number of renters are turning to a financial product that promises relief by letting them split the bill — for a price.
So-called “rent now, pay later” services have emerged in the past few years as housing costs rise and wages grow unpredictably, especially for low-wage workers and the gig-economy. According to the Bureau of Labor Statistics, rents have jumped nearly 28% in the past five years.
Companies like Flex, Livble and, more recently, Affirm, say breaking rent into multiple payments can help tenants manage cash flow. But consumer advocates warn the products are typically like short-term loans, cash-strapped to fit into already strained budgets and, in some cases, carry triple-digit interest rates — raising questions about whether they ease financial stress or deepen it.
Kellen Johnson, 44, started using Flex to split his rent payments about two years ago. Instead of paying the full $1,850 of his rent on the first of the month, Johnson would pay $1,350 on that day, and $500 on the 15th. For the service, Flex collected a monthly subscription fee of $14.99, plus 1% of gross rent, from Johnson of $18.50, bringing his monthly cost of the app to more than $33.
Johnson said he was willing to pay some of the costs in part because he was working as an independent delivery contractor for Amazon at the time, and his wages could vary.
“It was the cost I was using, but I continued because it was easy,” said Johnson, who now works as a driver for seniors in Sacramento, California.
About 109 million Americans, or about 42.5 million households, are renters in the United States. The Census Bureau estimated by 2024 that the majority of those households are paying 30% or more of their monthly income on rent. The bureau considers those households “cost-burdened,” meaning rent eats up so much of their income that they have little ability to plan for future expenses or build wealth.
Rent now, pay later services generally work the same way: The company pays the landlord all the rent when it’s due, and the tenant pays the company back in two or more monthly installments. Because rent can be a big expense, companies say that spreading the payments can give tenants more cash on hand.
Many of these services come with fees. Payments can be arranged differently but should be considered debt charges, consumer advocates warn. In Johnson’s case, he was paying $33.49 for a two-week loan of $500, for an annual effective rate of 172%, when expressed using standard consumer loan calculations.
“Tenants should be suspicious of any landlord-tenant finance provider and be suspicious of anything that sells itself as no money or interest income,” said Mike Pierce, executive director of Protect Borrowers. Pierce previously worked at the Consumer Financial Protection Bureau and co-wrote a report released this week on the industry.
Launched in 2019, Flex is one of the largest companies specializing in the distribution of rent payments. The company says its 1.5 million customers now send about $2 billion a month through its system, and several of the country’s largest landlords accept Flex as a payment method.
Flex says most of its customers are low-income tenants with poor credit profiles. The company reports an average credit score of 604 among its users and says nearly one in three customers work more than one job to make ends meet. A Flex spokesperson says the average customer uses the service three to four times a year. Johnson used it every month.
Livble doesn’t charge a subscription, but charges employers a fee of $30 to $40, according to the company’s help page. Depending on how long the renter defers a portion of the payment, Livble’s payments can translate into an effective annual percentage rate of approximately 104% to 139%.
Buy now, pay later company Affirm said this month it is testing a program that allows some customers to split the rent into two payments. The program is being tested in partnership with Esusu, a company that reports rent payments to credit bureaus to help consumers build credit. A spokesperson for Affirm said the company does not charge tenants interest or fees to use the product, but may charge homeowners fees.
As another financing option, homeowners are increasingly accepting credit cards for mortgage payments. Bilt, a credit card startup, built its brand by targeting employers at launch, and some employers use credit cards to accumulate rewards or points.
But paying rent with a credit card can also be very expensive. Landlords often pass processing fees on to tenants. Depending on the card issuer and payment network, these fees can range from about 2.5% to 3.5% of the rent. For an employer paying $1,500 a month, that translates to $37.50 to $52.50 in fees — a monthly cost comparable to Livble and Flex.
Economists and employer advocates argue that none of these funding options address the fundamental problem of affordability in the rental market. If credit cards, or flexible payment options for paying rent, are widely used, they worry that rents could increase significantly as landlords begin to put potential money into tenants’ weekly incomes as opposed to the local rental market.
Retailers are already passing on the cost of credit card processing to customers in the form of higher prices, and advocates worry that the rental market may adopt similar patterns. For example, Livble is owned by RealPage, which last year settled allegations that its algorithm allowed landlords to collude and raise rents.
Economist Christopher Rugaber contributed from Washington.
