Americans have historically turned to buy now, pay later (BNPL) financing to cover the cost of everyday expenses like groceries and consumer purchases such as clothing and furniture. Now, some of these lending companies are turning their attention to a bigger expense: Monthly rent. 

A new BNPL option from fintech company Affirm will give renters the option to break up their rent into two equal payments instead of a single lump sum payment. 

Affirm, one of the biggest BNPL companies, told CBS News the service is starting as a limited pilot program through a partnership with New York-based company Esusu. The latter company reports consumers' payment information to the major credit agencies, according to its website.

A spokesperson from Affirm said the company underwrites every application and approves only people it believes can "responsibly afford to repay."

"If a tenant applies through Esusu and is approved by Affirm, they are eligible to receive a 0% interest loan to be repaid in two, biweekly installments without any fees," the spokesperson said in an email. "Esusu and Affirm are not offering interest-bearing loans as part of this program."

Affirm isn't the first company to offer BNPL loans for rent payments, but it could have a wider reach, according to Adam Rust, director of financial services at the Consumer Federation of America, an association of non-profit consumer organizations. Approximately 24 million Americans use Affirm's BNPL services.

"Affirm is one of the leaders in this space," Rust said. "Their reach is going to be different."

The Affirm spokesperson did not disclose how long the pilot will last or whether it plans to expand the BNPL rent option once the pilot ends. Fintech company Zip also offers a BNPL product for rent, according to trade publication PaymentsDive.

BNPL comes with risks

BNPL has grown in popularity because it gives consumers the option to split their payments into multiple bite-sized installments rather than paying the full cost of big-ticket items up front. 

A December report from the Consumer Financial Protection Bureau (CFPB) found that upwards of 50 million consumers took out at least one BNPL loan in 2023 from one of the six major lenders in 2023.

BNPL plans typically give customers the option to pay back the cost of a purchase in four installments with no interest, according to CFPB.

While this may seem like an alluring option, it can come with hidden risks. Taking out multiple loans with different deadlines can make it difficult to keep track of repayments and lead to missed payments, for which some companies charge late fees. 

"It is easy to get turned around," said Matt Schulz, chief consumer finance analyst at LendingTree.

In some cases, missed BNPL payments can get reported to the credit bureaus, taking a toll on your credit score.

Affirm says on its website that it's the only major BNPL service to report loan activity to U.S. credit bureaus. The San Francisco-based company shares payment information with Experian and TransUnion, two of the three main credit reporting agencies.

Housing security

Experts, meanwhile, have warned that BNPL can be a slippery slope that can end up pushing consumers further into debt — an issue that could pose bigger risks when dealing with monthly rent.

"You can see the problem of how borrowing could lead to a death spiral that actually threatens a tenant's housing security," Rust said, adding that few examples exist where tenants can borrow money to pay their rent.

Schulz thinks Affirm's new option could offer tenants more flexibility, but said it could also cause people to overextend themselves.

"They might feel like they can afford a bigger monthly rent because they're able to spread the cost out over multiple paychecks," he said. "That's a pretty risky game."

Still, Schulz thinks BNPL for rent will only continue to grow in popularity as people seek out flexible payment options.

"Lenders and businesses are clearly seeing the demand for these types of offerings, and I'd suspect that we will only see more of these loans in the near future," he said.