Understanding the Impact of Installment Plans on Rent: How Dividing Payments Can Potentially Increase Costs
Paying rent has become a burden for many Americans in recent years, with a record number of renters spending a significant portion of their income on housing. To address this issue, installment plans for rent have emerged as a potential solution. These plans, offered by companies like Flex, Best Egg, and Jetty, allow renters to divide their monthly rent into smaller payments, making it easier to manage. However, while these plans may seem enticing, they can actually increase costs for renters.
According to a report from Harvard University’s Joint Center for Housing Studies, a record 22.4 million renters in 2022 spent more than 30 percent of their income on rent and utilities. Of those renters, 12.1 million spent 50 percent or more of their income on housing. This level of cost burden leaves renters with limited choices and forces them to make difficult decisions about basic necessities like groceries and healthcare.
Installment plans for rent aim to alleviate this burden by allowing renters to pay their rent in smaller payments. For example, Flex, one of the companies offering these plans, partners with thousands of rental properties across the United States to provide lines of credit or loans to renters. The company pays part or all of the rent on the first of the month, and renters repay the borrowed amount in one or more installments by the end of the month.
While these plans may offer flexibility and ease of payment, they come with additional costs. Renters are required to pay a monthly membership fee, typically around $14.99, as well as a bill payment fee of 1 percent of their total rent. For example, if your rent is $1,500, you would have to pay about $30 in fees. If you repay the borrowed amount in 25 days, the annual percentage rate (APR) would be around 29 percent. This is considered quite high, as consumer advocates believe that an APR of 36 percent should be the maximum limit for affordability.
It’s important to note that installment plans for rent are not a solution for renters who cannot afford their rent. In fact, these plans can make rent even more expensive due to the additional fees. If you find yourself struggling to afford rent, it’s advisable to examine your earnings and expenses and make adjustments accordingly. This may involve taking on a side hustle, selling unnecessary items, or getting a roommate. These alternatives are generally more effective than relying on financing options.
If you still cannot afford your rent, it is recommended to communicate with your property manager or landlord as soon as possible. They may be willing to offer payment flexibility without any fees, especially if you have a history of on-time payments. Additionally, nonprofit credit counseling agencies can provide assistance in finding rental assistance options.
While installment plans for rent can provide temporary relief for renters with cash flow issues, they should not be seen as a long-term solution. It is essential for renters to address their financial situation and make necessary adjustments to ensure they can afford their housing costs without relying on installment plans or incurring additional fees.
In conclusion, installment plans for rent may seem appealing, but they can potentially increase costs for renters. It is crucial for renters to carefully assess their financial situation and consider alternative solutions before opting for these plans. By making informed decisions and seeking assistance when needed, renters can ensure that they can afford their housing expenses without resorting to costly installment plans.
