THE BASIS POINT

Why getting a loan to pay rent isn’t as ridiculous as it sounds

The rent is too damn high and home prices are expensive too.

So what do you do when you’re ramping your career and/or transitioning cities? Move back home? Couch surf?

Nah. These options don’t work when you’re a climber who’s city-hopping for new opportunities.

So, what then? Take out a loan to pay rent short term?

Maybe.

Turns out this isn’t as ridiculous as it sounds, and some new startups can help.

The Wall Street Journal just reported—rather cynically—on a batch of lenders that will finance your rent payments short term. Basically, if you’re switching jobs or the timing of your income is inconsistent, companies like StayTony will let you finance a month or 2 of your rent when needed.

StayTony lets you split up a month’s worth of rent into a 6 or 12 month term—6 months interest-free or 12 months with 20% interest, which is about the same as a credit card. Here’s the math they give on their site:

For example, a unit with a $2,580 monthly rental price would have a first payment of $237 due at time of booking plus 11 payments of $237 at 20% APR.

These lenders are playing a different game than payday lenders that WSJ compares them to.

Payday lenders will give you enough money to cover your rent, but with often insurmountable interest rates of 100% or more. Payday lenders often prey on those with no other options and no real upward career/income mobility.

Conversely, StayTony and other rent lenders target those of us who are building. Or in one case used in the WSJ piece, those who receive their income at sporadic intervals.

The example above makes the point: if you can get into a $2,500 a month apartment, you’re probably not in the same boat as someone who needs to take out a predatory payday loan to cover a car repair.

So rent debt can sound bad—especially when a media story leads with references to payday loans and unaffordable cities—but it’s a lot like student debt—a convenient topic for alarmist headlines, but nevertheless a relevant problem that needs solving for those of us in the early stages of building our financial lives.

As for any systemic risk, this is nichy in the context of all other consumer loan categories because the loans are pretty small.

And besides, don’t you have better things to worry about, like how much your Instagram feed induces bad spending habits?

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Reference:

New lenders entering realm of payday lending, pitching loans to young renters in increasingly unaffordable cities (WSJ)

StayTony Rent Loan Pricing (StayTony)

Can fintechs fix punitive payday loans? (The Basis Point)