Buy now pay later for renters: It’s real – and really risky
Multiple companies will cover your rent if you're short on cash, but they'll make you pay extra one way or another.
Australian shoppers love buy now and pay later (BNPL) apps. And now there are multiple companies applying the same formula to renters.
If you're a renter struggling to pay rent, you can now borrow the cash and pay it later. Rental BNPL companies are calling this a flexible service that renters need, and that may be true. But while they're designed to help renters by offering flexible ways to pay, the customers most in need of this flexibility are also the most likely to end up deeper in financial distress.
Australian buy now pay later options for renters
Tenanting is a platform that lets landlords collect rent. For renters, it offers a free basic service and charges extra for Rent Boost, its flexible rental payment service.
This service lets you borrow money to pay the rent when it's due and pay it back when you get paid. Renters pay a flat 5% fee.
If your weekly rent is $400, then you'd pay an extra $20 a week. In a 4-week rental period that flexibility could cost you an extra $80.
Rent.com.au also offers various payments services for renters, including 2 products called RentPay and Safetynet.
As with Tenanting, RentPay is designed to "let you take control of your rent and smooth out your cash flow." You can add funds to your RentPay wallet via your credit card and manage your rental payments through the app. There is a $2 monthly fee to use the service and a credit card fee of 1.25%.
Safetynet works more like a buy now pay later product and is designed for renters who find themselves short on rent money. It's a short term line of credit that can cover you when you're short on funds.
Safetynet also comes with small activation and monthly service fees. There's also a $15 dishonour fee for missed repayments.
Then there's Flexibond, which offers a similar service for rental bonds. You sign up and Flexibond pays your bond via a digital card. Then you repay the bond in instalments in exchange for a flat 5% fee. So if your bond is $2,000 you'd pay $100 on top.
It's a booming market. There's also Fupay, which lets you "buy now pay later everything" including bills and rent.
Renters need to understand the risks of BNPL
If you're in danger of missing this month's rent, quick access to cash from a BNPL is probably a lifesaver. You don't need a lecture about debt, your rent is due and your next pay day is a week away.
But if you're regularly using BNPL services to pay for rent, you're likely in a bit of financial trouble. While these payment services can help in the short term or as one-offs, they will cost you more in the long run in fees and late payment charges.
There are also bank or card fees that come up when sending money to a BNPL account, and these can catch you by surprise as well.
MoneySmart.gov offers some good advice on the risks of using BNPL in general. Its BNPL page says, "If you sign up for more than one service, it can be hard to keep track of payments" and warns about the dangers of overcommitting to spending you can't afford.
While BNPL is something of a grey area as a credit product, missed repayments may appear on your credit score. And repeated use of these services is definitely a red flag for lenders should you apply for a mortgage or credit card.
The fact that these services are so easy to access is also a potential downside. These services are essentially offering you credit, but they don't have to conduct credit checks or make sure that you can afford to cover your debts later.
For most customers, it won't be a problem. But BNPL makes it easier for people with money troubles to get into even bigger money troubles. Knowing the risks is essential when using these services.
If you're in financial distress you can call the National Debt Helpline on 1800 007 007. Need help tracking your saving, spending and checking your credit score? Download the Finder app.