Would you take out a loan to pay the rent?

The tech industry’s ability to disrupt exisiting markets is well documented, with major players like Uber and Airbnb making their presence felt abroad and closer to home. When it comes to the rental market, rent-bidding apps such as Silicon Valley-based Rentberry and Live Offer have also been feted for an Australian launch.

Now, another start-up has established itself in the US, offering tenants using its platform the ability to borrow money in the form of a one-off loan to help them cover the rent.

Based in Santa Monica, Domuso has been offering the service for two years in Southern California and has recently expanded to the north of the state.

The company operates an online rental payment platform, working with companies that manage large residential complexes, with revenue coming from payment processing fees.

The tenants in those properties pay through Domuso, and have the option of applying for a Domuso Instalment Loan to cover a rental instalment they can’t manage rather than incur late fees and potentially risk eviction. There is also financing available to cover security deposits, or rental bonds.

The loans are available for six to 12 months and are reported to have an average annual interest rate of 27 per cent, which has triggered some concerns from financial experts. However, Domuso co-founder Michael Lightfoot argued that some residents were already paying their rent on credit, and Domuso was a safer digital alternative.

He said the company had “no intent of going down a path of payday lending, or anything in that regard”.

“We provide one loan at a time for any one-time payment that is due [one month’s rent, move-in and deposit, move-out, etc]. Renters must pay off their current loan before taking a new loan,” explained chief executive Damian Langere in a L.A. Biz interview.

He said the service would be beneficial for gig-economy workers facing strict rental payment deadlines, or renters grappling with unexpected financial emergencies, such as medical bills or losing their jobs.

The company had, as of early 2018, raised a total of $US5.8 million in investment and had around 30,000 properties in their system, with plans to expand by attracting new property management companies. Two years ago, around 4000 of the then-20,000 tenants using Domuso had made a payment using the credit option.

Figures released in 2017 by CareerBuilder, a job-hunting site, suggest that as many as 80 per cent of the Americans live pay cheque to pay cheque – and California is ranked as the second-least affordable state to live in. Much of the new housing built around the Bay Area and Los Angeles is only affordable to workers earning over $US100,000 ($138,700) a year.

Both San Francisco and Los Angeles were ranked in the top 10 least affordable housing markets worldwide by Demographia in 2018, as well as being in the top 5 least affordable cities for renters.

While the platform is not available in Australia, other forms of credit such as short-term loans may be used by tenants struggling to make ends meet.

The managing editor of comparison platform Finder.com.au, Kate Browne, said using credit to pay the rent was a dangerous situation to get into.

“Payday lenders have been on the rise in Australia for a long time,” she said, noting the casualisation of the labour market and the situation of low-income earners. Rental stress remains high in Sydney and Melbourne, despite Sydney’s recent rent falls.

“Another reason we are seeing this is the rise of online access – you don’t even need to get off the couch, and you can get a loan in as little as 30 minutes,” she added.

“In terms of an alternative – the very first one is to try to negotiate with your landlord or agent. There are also financial counsellors that offer free independent advice, that’s a really sensible port of call.”

For those still needing to borrow money, it was worth comparing options, she said, with low-interest loans available to those on low incomes.

“We are always reticent to suggest people get into debt,” Ms Browne said.