Installment plans for rent divide up payments, but drive up costs
In January, I received an email from my apartment complex saying that I could now divide my monthly rent into two payments via a product called Flex.
I would make the first payment on the first of the month, but I could choose when to make the second payment. According to the email, this would help me pay rent on time, improve my cash flow and even build my credit history. Enticing, right? It sounded familiar. “Buy now, pay later” plans operate similarly, where you pay for a purchase over a series of installments, usually with no interest, which can help manage the expense.
But needing to divide up a payment to afford something — especially housing — could spell financial trouble for some renters.
In 2022, a record 22.4 million renters spent more than 30% of their income on rent and utilities, according to a January 2024 report from Harvard University’s Joint Center for Housing Studies. Of those renters, 12.1 million spent a staggering 50% or more, an all-time high.
By federal guidelines, these renters are considered cost-burdened (or severely cost-burdened, in the case of the 50% spenders). To be cost-burdened is to live in a world of limited choice. Should you pay rent or buy groceries or go to the doctor?
Joanne Danganan, an accredited financial counselor in Los Angeles says it’s common for clients to have over 40% of their income tied up in rent, leaving every dollar in their budget accounted for and sometimes more.
“How much are you making versus how much are you spending?” she says. “If the math at the end is a negative number, you’re spending way too much.”
Companies like Flex, Best Egg and Jetty position themselves as part of the solution. Flex partners with thousands of U.S. rental properties to offer its line of credit, which it says can help soften the blow of rent with smaller payments that are easier to manage.
“By providing flexibility over the most significant recurring expense for most people, Flex is an important and valuable solution for renters navigating the complexities of the current and evolving rental landscape,” said Kala Nicholson, senior vice president of marketing at Flex, in an email.
Here’s how it works.
You can apply for a line of credit or loan from one of these companies as long as you’re eligible — usually, your property manager must agree. If you’re approved, the company pays part or all of your rent on the first of the month by tapping the line of credit or loan. Then, you pay back what you borrowed to the company in one or more installments by the end of the month. You won’t pay interest in the traditional sense, but the service isn’t free. The email from my apartment says I would need to pay a monthly membership fee of $14.99, plus a bill payment fee of 1% of my total rent. If your rent is $1,500, that’s about $30 in fees. If you repay Flex in 25 days, that’s an annual percentage rate of about 29%. Consumer advocates consider 36% to be the affordability ceiling on interest for a loan.
Some companies also report payment history to the credit bureaus, which can help build your credit score if you pay on time.
Danganan says these products may be an option for renters who have the money for rent but struggle to regulate their cash flow, like gig workers with unpredictable pay.
“I can see it as a tool that you graduate from eventually,” she says. “It should not be a permanent solution.”
If you don’t have the money for rent, paying in installments won’t help. It can even hurt, since the fees make your rent more expensive, and failure to repay the company can lower your credit score if the company reports missed payments.
Instead, look at your earnings versus expenses and consider adjustments. Picking up a side hustle, selling stuff you don’t need or getting a roommate are better solutions than financing, Danganan says.