New Lenders Market Loans to Renters
By Lindsay Frankel
Insufficient income and unpredictable schedules and pay pose a problem for renters as rent prices skyrocket and wages remain stagnant. The phenomenon has spurred the growth of loan companies marketing their products specifically to people who are having trouble paying rent, the Wall Street Journal reports. Many lenders now have relationships with property management companies and assist residents with loans to pay their rent.
The problem with taking out a loan to pay rent is that many people find the interest rates unaffordable when they are already struggling to make ends meet. This raises some concern about repeat borrowing. However, most of these loans provide a lower cost alternative to renters who might otherwise use more costly forms of borrowing, such as payday loans. Risky payday loans carry an average APR of almost 400 percent that makes it difficult for borrowers to get out of debt. Loans marketed to renters carry much lower interest rates and longer terms.
For example, one property management company, which manages corporate rentals in Los Angeles and Atlanta, lets tenants use loans from its partner vendor to pay rent. They can take out a loan to cover up to 3 months rent with a 12 month term. The loan is interest-free for the first six months, followed by a rate of 15—17 percent. That’s a far cry from the interest rate charged on a payday loan in Los Angeles.
Median rent in the U.S. peaked in the first quarter of 2019, according to Census Bureau data; the median asking rent was $1,006. As renters attempt to cope, they’ll continue to seek safe access to credit.