BNPL lenders expand from shopping into rent and household bills

"Buy now, pay later" lenders are increasingly offering loans for basic household expenses, including rent, electricity, health insurance and other bills, as more consumers turn to short-term financing.

The lending apps Flex and Zip allow customers to borrow money for broadband, electricity, health insurance, mobile phone service, mortgage and water bills, while Affirm Holdings Inc (NASDAQ: AFRM ) has started offering some tenants loans to extend their monthly rent payments, The New York Times reported Monday.

BNPL Moves Beyond Shopping "Buy now, pay later" loans initially grew as a way for online shoppers to make purchases without traditional credit cards.

Intuit Inc (NASDAQ: INTU ) has also started promoting "File Now, Pay Later" loans to TurboTax users who owe taxes.

Pay-later loans are becoming the "working capital for the modern middle class," said Karen Webster, chief executive of Pymnts.

Americans spent $160 billion through BNPL loans last year, nearly twice the amount in 2023, according to Federal Reserve economists.

Half of BNPL users surveyed by LendingTree said they could not make ends meet without the loans.

The loans "address the real need that people are short of funds, but just adding fees to their monthly budget and leaving them short next week is not the answer," said Lauren Saunders, a senior attorney at the National Consumer Law Center.

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The loans can generally be obtained immediately through an app connected to a bank account or debit card.

But borrowers can also accumulate multiple loans.

A quarter of LendingTree’s surveyed users said they had three or more BNPL loans outstanding at some point.

Direct withdrawals can also trigger overdraft fees when payments are mistimed.

Ashley Reed turned to Afterpay, Klarna and other services after a family emergency left her with significant expenses.

She now spends about $700 a month paying down BNPL debt while borrowing again to stay afloat. "It’s a roller-coaster ride, up and down — I can’t afford to have an emergency," Reed said.

Consumer Debt Remains Elevated U.S. credit card balances reached $1.26 trillion in the second quarter, rising $21 billion, or 1.7%, from the previous quarter.

About 60% of cardholders carry revolving balances.

Upgrade CEO Renaud Laplanche said BNPL accounts for roughly 25% of Upgrade’s revenue while generating about 75% of its new users.

Lenders Defend Expansion Affirm’s rent-financing program allows one rent loan at a time, while Flex has financed nearly $40 billion in rent payments for 3 million tenants.

Flex customers have a median credit score below 600.

Flex charges a $6 monthly fee, 3% of the borrowed amount and a processing fee.

It has expanded into utilities and auto loans. "We can’t solve income, or the price of rent and affordability," said Ryan Metcalf, Flex’s vice president of public affairs. "What we can help people solve is a timing issue.

It’s harm reduction,".

BNPL Creates Data Blind Spot Most BNPL lenders do not report loans to credit bureaus, creating what is sometimes called "phantom debt." FICO planned credit scores incorporating BNPL data, but has not released them while waiting for lender data to reach credit bureaus at scale.

The Federal Reserve Bank of Richmond previously said systemic risk was limited but warned risks could increase if left unchecked.

The expansion leaves BNPL serving both consumers who prefer its short-term financing and those relying on it to cover expenses they cannot afford.

Disclaimer: This content was produced with the help of AI tools and was reviewed and published editors.

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