Rent Now, Pay Later? Why ‘Split-Rent’ Apps Could Surprise Struggling Renters

Thirty-five percent of U.S. households are renting, and they may need a hand paying rent. The average rent for an apartment in the U.S. is about $1,750, according to RentCafe. 

But rental prices are decided by the local market, and cities such as San Francisco, New York City, and Boston have much higher rents. The average rent for a two-bedroom apartment is $5,200 in San Francisco, $3,700 in New York City, and $3,400 in Boston, according to TurboTenant. 

Paying the full amount of rent this high at the beginning of a month could be challenging, which is why fintech companies are stepping in to assist consumers split up hefty rent payments. 

Fintech companies such as Esusu and Flex allow renters to pay later on monthly rent payments, splitting them into more manageable chunks for a price. 

At Esusu and its partner properties, renters who pay $35 a month memberships or $50 a month memberships have the option of Split Pay through the company’s partnership with Affirm, which allows renters to pay rent in two payments instead of one. 

“It fundamentally comes down to a cash flow problem,” said Samir Goel, a co-founder of Esusu, told USA Today. “It’s not that (tenants) don’t make money, it’s that the income they get and their expenses are basically in and out.”

Flex also allows renters to split monthly rent payments into two smaller payments. A renter would make the first smaller payment when the rent is due, and Flex would pay the full monthly rent to the rental property. 

Next, the renter picks a date later in the month to make a second smaller payment and then makes this second payment. Rent is paid in full plus some fees to Flex.

Flex costs $14.99 per month plus 1% of rent. So if monthly rent is $1,500, that 1% fee comes out to $15. Total cost per month for Flex would be $29.99. In some cases, there may be a $3 fee from the rental property. There also is a 2.5% processing fee for paying with a credit card. 

While consumers may see a fee to split rent payments, consumer advocates Protect Borrowers and Towards Justice see short-term, high-cost loans akin to payday loans.

“Big banks and Big Tech are cashing in on the affordability crisis by hawking exploitative loans to Americans who are just trying to keep a roof over their heads,” said Ben Kaufman, a Senior Fellow at Protect Borrowers.

“Any true affordability agenda must involve taking on the predatory cottage industry sprouting up around our rental market.” — David Seligman, Director of Towards Justice

David Seligman, Director of Towards Justice, said pay rent later products take advantage of what he called “desperate” renters.

“Any true affordability agenda must involve taking on the predatory cottage industry sprouting up around our rental market,” Seligman said in a press release.

Another way for renters to pay their rent when they don’t have the cash for a full monthly payment is to charge rent on a credit card. It may cost a little more than using a pay later rent service, but renters will be more in control of the transaction.

The processing fees for charging rent on a credit card is 2.5% to 2.9%, according CNBC Select. So if rent is $1,500, these fees come out to $37.50 to $43.50 per month. Charging rent for a whole year will cost $450 to $522 in fees.

But don’t forget to factor in any credit card interest if the balance, including a hefty rent payment, isn’t paid before the due date. 

Fintech companies are willing to split up rent payments for a price. Check the fees charged by these companies carefully. Is it worth the price to get help with rent this month? Would a credit card work instead? Find out the processing fees for charging rent on a credit card. Compare the costs of each option.

If needing help with rent is a monthly occurrence, moving to a more affordable apartment or taking in a roommate may be a good solution. These options will help to improve finances, and they won’t charge any fees.