As rents keep climbing and paychecks stay unpredictable, a new financial product has quietly moved into the rental market. It is called rent now, pay later. It sounds helpful. In reality, it is one of the worst ways to handle your money, and in most cases it is far worse than simply using a credit card (aaaaaargh!) .
What Are Rent Now, Pay Later Services
Rent now, pay later services let tenants split their rent into multiple payments during the month. Instead of paying the full rent on the first, the service pays the landlord in full and then collects partial payments from the renter later.
Companies like Flex, Livble, and more recently Affirm say this helps renters manage cash flow, especially people with variable income.
But beneath the marketing, these services function like very short term loans with extremely high effective interest rates.
How These Services Actually Work
The structure is simple.
The rent payment company pays the landlord the full rent on time. The renter then repays the company in two or more installments during the month. To do this, the renter pays fees, subscriptions, or flat charges.
Because rent is such a large expense, the companies argue that spreading it out leaves more money available for groceries, gas, or utilities. What they do not emphasize is that the renter is borrowing money for a very short period and paying heavily for that privilege.
A Real Example Shows the Problem Clearly
A renter named Kellen Johnson used Flex to split his $1,850 monthly rent. Instead of paying everything on the first of the month, he paid $1,350 up front and $500 two weeks later.
For this service, Flex charged him a $14.99 monthly subscription plus 1 percent of the rent, which added another $18.50. His total monthly cost was $33.49 just to delay $500 for about two weeks.
When you strip away the marketing, the economics are clear. Johnson borrowed $500 for roughly 14 days and paid $33.49 in fees.
That translates to an effective annual percentage rate of about 172 percent.
This is not budgeting help. It is an extremely expensive short term loan.
The Effective Interest Rates Are Shockingly High
Consumer advocates warn that rent now, pay later fees should be viewed as the cost of credit. When calculated using standard lending methods, the numbers are staggering.
Flex transactions like the one above often land near 170 percent APR. Livble charges flat fees of $30 to $40, which translate into effective APRs of roughly 104 percent to 139 percent depending on how long the payment is deferred.
These rates are comparable to payday loans, even though they are marketed as flexible payment tools.
“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,” said Mike Pierce of Protect Borrowers, who previously worked at the Consumer Financial Protection Bureau.
Affirm and Esusu Are Not a Free Pass
Affirm is piloting a rent splitting option in partnership with Esusu. In this pilot, renters can split payments with zero interest and no late fees, according to the company.
That sounds better, but it still does not solve the core problem. Some Esusu memberships cost $35 to $50 per month, and the option is only available at partnered properties. Even when the interest is zero, the model encourages people to borrow for a fixed expense they already cannot afford.
Financial planners quoted in the reporting warn that relying on installment plans for rent is a slippery slope that can lead to chronic financial instability.
Why This Is Worse Than Using a Credit Card
Ironically, one of the few times a credit card can be the better option is compared to rent now, pay later services.
If you were going to borrow anyway, even a credit card cash advance can be a less destructive option than rent now, pay later. Using the same example, if you needed $500 for the second half of the month, you could take a short term cash advance on a credit card and pay it back when your next paycheck arrives. Cash advances typically carry high interest rates, often around 25 to 30 percent annually, plus a one time fee.
But over a two week period, the actual dollar cost of borrowing $500 would usually be far lower than the $30 to $40 charged by rent splitting services. Even with fees, the effective annual rate on a credit card advance is often a fraction of the triple digit APRs embedded in rent now, pay later products. In other words, one of the few times a credit card actually looks like the responsible choice is when the alternative is a disguised payday loan tied to your rent.
Some cards like AMEX charge you no interest if you repay during the same month.
But much better if you just forego your Starbucks one time per week, and save up enough to have the extra in your bank account.
Why This Is a Really Stupid Financial Habit
Rent is not a surprise expense. It comes every month. Borrowing at triple digit interest rates to cover a predictable bill is a sign that the underlying budget does not work.
Economists and housing advocates agree that these services do nothing to fix affordability. In fact, they may make things worse. If landlords see tenants regularly using financing tools, they may begin factoring short term cash flow into pricing, pushing rents even higher.
The situation becomes even more troubling when companies like Livble are owned by RealPage, which has faced allegations related to rent inflation algorithms.
The Bottom Line
Rent now, pay later is marketed as flexibility. In practice, it behaves like a payday loan for housing.
You pay $30 to $40 to delay a portion of your rent for two weeks. The effective interest rate often lands between 100 percent and 175 percent APR. That is not smart money management. It is a financial trap aimed at people who are already stretched thin.
If you cannot afford rent, borrowing at extreme rates will not fix the problem. It only delays it and makes it worse.
FAM Editor: Someone may want to look into this, there is a history in the “payday loans” world of predatory interest rates that have been dealt with by local legislation.
