BNPL for Your Rent? Money Experts Warn When (And When Not) To Use It
Some tenants can now finance their rent payments with a buy now, pay later (BNPL) program.
Currently in a pilot program, BNPL provider Affirm partnered with Esusu to service rent payments. Pricing for Esusu starts at $35 a month and allows users to split their rent payments in two with no interest and no per-use fees. The company reports payments to the credit bureaus, as both a carrot and a stick for on-time payments.
But just because you can, doesn't mean you should. Here's what to weigh before you delay to pay.
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Should Renters Consider BNPL?
BNPL for rent makes sense in exactly one scenario: a one-time cash flow gap you can close within four weeks, according to financial advisor Brennan Kolar of Atlas CPA Index.
“A renter waiting on a delayed paycheck from a new job or covering a one-time medical bill that drained their savings can use the smoothing feature without paying interest,” he said.
The inherent problem? A one-time cash crunch defies the logic of Esusu’s ongoing subscription model. They charge you every month, to continually break up your rent payments. Renters who budget well and keep an emergency fund don’t need to pay a company $35 every month, just to split up their rent payments.
Put another way, that's $420 a year simply to spread out rent payments to coincide with paychecks, when you could hold onto that money all month in a high-yield savings account and earn a little interest on it, plus keep hundreds of dollars in your pocket by avoiding maintenance fees.
The Risks of BNPL for Rent
Aside from blowing $35 a month as a certainty, BNPL for rent comes with a slew of risks.
Financing your rent by BNPL comes with similar risks as things like charging rent to your credit card. You can all too quickly spiral into uncontrollable debt, paying enormous interest on each debt form.
It also creates a cycle of financing everything in your life, rather than building savings and investments.
“They have you financing your rent month after month, plus BNPL loans for furniture, electronics or clothing financed from the same company,” said financial advisor Cody Schuiteboer of Best Interest Financial. “There’s a reason why multifamily companies use BNPL as a predictor of rent payment delinquency when screening tenants, seeing this type of payment as higher risk.”
That credit risk also extends to missed payments. If you fail to pay the financed portion of your rent on time, Esusu reports it to the credit bureaus and your score drops.
Then there’s banking risk. Esusu pulls the money from your bank account automatically, but if you don’t have the money in your account, it will trigger an overdraft fee from your bank — arguably what you're paying to avoid in the first place.
Finally, Schuiteboer pointed to the higher stakes of housing risk.
“Missing payments on a furniture BNPL loan might hurt your credit and ability to buy other things, but missing payments for rent could cause an eviction and that stays on your credit report for seven years,” he said.
What To Do Instead
No one wants to hear it, but if you want to get ahead financially, you need to follow the fundamentals of personal finance.
Live below your means. In this case, that means spending no more than 25% to 35% of your income on rent. That might require moving or bringing in a roommate to share rent and utilities with you.
Keep an emergency fund of at least two to three months’ living expenses. If you do get hit with a major car repair or medical bill or lose or change jobs, you’ll have a cash cushion to see you through it — without turning to debt.
If you’re already deep in the hole of debt, you might need a “hard reset” like moving in with your parents for a few months while you go on a savings sprint to pay off your debts.
Accountant Mike Kern of FreeBudget puts it succinctly: “Create financial habits that break the paycheck-to-paycheck cycle and build financial stability, so that you aren’t tempted to spend money on services like this in the first place.”
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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