ICFE eNEWS #17-06 - January 9th 2017
Ask Mr G's "Rent-to-Own: A Good Idea?"
By Jim Garnett, a/k/a Ask Mr.G, a member of the ICFE's Board of Educational Advisors
Is it a good idea to buy stuff at a rent-to-own store?
"Name brand items, no money down, small payments, bad credit
no problem, same-day delivery, no long-term commitment, no
The above is an advertisement for a
"Rent-To-Own" (RTO) store. Sounds like the place to go, does it
not? What could possibly be wrong with taking them up on their
offer? I wouldn't say it would be wrong to buy stuff from a
rent-to-own store, but on the other hand, I wouldn't say it
would be wise either.
The RTO industry began around 1980
when the Association of Progressive Rental Organizations (APRO)
started with 40 member companies. Today 350 member companies
represent over 10,000 stores and serve almost 5 million
customers at any given time of the year.
So, how does the
RTO process work? These stores operate in a manner synonymous
with their name, "rent-to-own." The customer chooses from among
hundreds of name brand items ranging from appliances, furniture,
electronics, computers, smart phones, etc. During the contract
period, he makes payments and is regarded as a "renter" of the
product, but when the payments are all made, he becomes the
"owner" of the product. The normal payment period is usually no
more than 19 months.
Because this process is technically
referred to as a "lease contract," it is not subject to as many
rules and regulations as is a "rental contract." But the RTO has
more options than a traditional lease agreement. For instance,
one can return the product early, and if undamaged, the contract
is terminated. If the product is returned with damage,
additional fees will be charged. Also, while making payments,
products that break will be repaired or replaced by the store
(sometimes also for additional fees). Late or missed payments
can result in repossession of the product, with forfeiture of
all the previous payments.
Furthermore, bad credit is not
a consideration, plus the payments in an RTO are usually smaller
than those of traditional loans or leases. Bottom line is that a
RTO enables people to have name brand items like "the Jones's"
do, and have them "right now" without waiting.
Convenience is the number one attractive feature, followed
closely by smaller payments. Thus, this industry is especially
appealing and alluring to lower income families and to those
with bad credit.
Is there a downside to all these great
features of the RTO? Yes, there are two major downsides: (1) the
rate of interest, and (2) the overall price of the products.
Rate of Interest. "Interest rates of 100% and higher are
often in effect when choosing the rent-to-own option. Legally
speaking, there is nothing wrong with this, as the rent-to-own
option is technically not a loan, but a "lease" (Money
Overall Price. Here's the deal-breaker! You
grossly overpay for the products! In fact, you can pay 3 to 4
times more for items at a rent-to-own than you would at a store
like Home Depot. Here are three examples of the "hot Deals"
currently advertised on a national rent-to-own website in
comparison to the very same item purchased at Home Depot.
VIZIO 50" 4K UHD Smart LED TV D50U-D1
Monthly (19 months)
RTO Total Price $2,456.09
Frigidaire Silver Mist 18. Cu. Ft.
Payments $95.30 Monthly (19 months)
RTO Total Price $1,715.22
Home Depot Price $566.10
Amana 3.5 Cu. Ft. Washer
Payments $13.99 Weekly (78 weeks)
RTO Total Price $1091.22
Home Depot Price $299.00
buy these three items from a rent-to-own store verses Home Depot
would cost you $792 more, $1,149 more, and $1,944 more! Now,
that is a big time problem; a problem that cannot be overlooked
for the sake of convenience.
If a shopper would put the
"rent-to-own" payment amount in his own cookie jar each
week/month, he could walk into Home Depot and buy the product
outright in only 4–5 months' time. Surely, we could discipline
ourselves to do that if it meant saving two to four times the
cost of the item.
So, "no," it is not wrong to buy stuff
from a rent-to-own store, but it is certainly is not wise to do
so. Wise people will delay the immediate gratification of having
the item "right now" if, in doing so, they will save a boat-load
of money and avoid paying interest.
© Jim Garnett, The Debt Doctor
AskMrG Consulting, LLC
2216 SW 35th Street
Ankeny, IA 50023