Pay-Later Lenders Expand to Cover Rent, Utilities and Taxes

The lending apps Flex and Zip now allow customers to take out loans to pay for broadband, electricity, health insurance, mobile phone service, mortgage and water bills. Affirm, one of the most popular pay-later apps, has started providing some tenants with loans to extend their monthly rent payments by a few weeks. Many dentists, veterinarians and medical clinics also offer instant pay-later financing, and Intuit this year began promoting 'File Now, Pay Later' loans to TurboTax users who owe money on their tax returns.

'Pay-later loans are becoming the working capital for the modern middle class,' said Karen Webster, chief executive of Pymnts, a payments industry news and research company. 'Consumers are using it more for essential, everyday things.'

Americans spent $160 billion last year through pay-later loans, according to research released recently by Federal Reserve economists, nearly twice the amount spent in 2023. That remains a fraction of the more than $3 trillion U.S. shoppers charge annually on consumer credit cards, but the industry continues to expand at double-digit rates each year.

Economists and industry analysts are trying to determine how much of that growth reflects consumer preference versus financial desperation. The rise in pay-later financing comes as many households lean more heavily on debt to keep up with daily expenses. Paying interest on basic needs adds to the overall cost of living, which has already been rising amid higher medical, housing and fuel costs.

For many borrowers, the loans have become their only option. Half of those using them said they could not make ends meet otherwise, according to the latest edition of a survey by LendingTree, a loan marketplace.