Why you should avoid rent to own
While going through the ads from local grocery stores and fast food restaurants I came across a rent to own advertisement. In bold letters across the top it read “Flexible Lease Ownership that Works for You!” As I started browsing the ad for furniture, appliances, mattresses and electronics I was perplexed. Next to each item there was a monthly price that was marked down. This gave the impression that you were saving money by paying lower monthly prices. In much smaller print showed there was the full cash price for these same items. With a bit of quick mental math it was clear that if you leased these items you would be paying over double the listed cash retail price.
I then started looking at each individual item and noticed that the payment terms ranged from 12 months to 24 months. The longer the term the more you would end up paying. These types of businesses tout the ease of flexible payment options, no credit needed and free delivery and set-up. It all can seem pretty appealing for people who have poor or no credit. However this is just another tool that businesses use to keep people indebted. This post is in no way intended to shame anyone who has used or is currently leasing from a rent to own establishment. I understand that there are times when this quick fix can feel like the only option a person has.
The real cost of renting to own
According to the Federal Trade Commission (FTC) “Most rent-to-own transactions are not regulated by federal lending and leasing laws that set disclosures and certain consumer protections” This means that they are able to charge pretty much whatever they want for their products as long as it has been disclosed.
Many of the items that were listed in were name brand items so the high cash price might make sense. However when I compared the listed cash price for a Philips 75” Class 4K UHD Smart TV ($1,829.99 plus tax) with the same model found in stores, I found that it was much cheaper elsewhere. In fact if purchased from newegg.com you could expect to pay $730 less ($1,099.99 plus tax).
This blatant overpricing is shocking but I was flabbergasted when I calculated the installment plan. If you chose to do the payment plan of $129.99/month for 24 months you would pay a total of $3,119.76. That is a whopping $1,290 additional dollars paid for the privilege of being able to make installment payments. With a bit of shopping around one could find pricing that is much better.
If someone is able to pay $129/month for 24 months to rent an overpriced item why not save the money and pay cash? The reason is pretty simple. It is much more gratifying to walk into a store and walk out with the item you want immediately. Human beings are hardwired to desire fast results. This is also why more people are in debt today than in any other time in modern history. This innate desire for instant gratification coupled with a culture based on consumerism feeds this industry.
In order for a person to overcome these powerful forces they have to create clear financial goals for themselves. If they save $129 per month in a bank account for 8.5 months they will be able to pay cash for the TV. With the retail cycles changing about every 90 days they may even end up getting that same TV for less.
Is it ever good to rent to own
There are times when leasing is a good option. The following are, in my opinion, the only times when rent to own should be used.
- Leasing a TV for a sporting event
- Leasing furniture and/or appliances for business rental apartment
- Musical instruments for children
- Special events or parties
- Real estate house staging
In these instances you are able to get a lot of bang for your buck by being able to use the items for a short amount of time without the hassle of selling them later.
Rent to own vs. Layaway
When I was growing up most stores had layaway. I remember going with my mother to the store and putting clothes on layaway twice a year. This was how many families were able to purchase large ticket items like school clothes and appliances without credit. My mom would make weekly payment and in a couple of months we would leave the store with our purchases. Very few stores offer this service anymore because there is not much money to be made in it. It is much more lucrative for the store to offer credit and charge interest for these items instead. This change of mindset from delayed gratification to instant gratification is what has given rise to what many people deem a predatory industry.
The choice is yours
Ultimately the consumer has the right to choose rent to own or leasing. As long as the person is clear about the full cost of doing business with these companies there is not much that can be done. It is highly recommended that if you go this route that you ask a lot of questions. Read all of the fine print before signing up for any services. Ask about prepayment fees as well as the late payment policy.
An alternative to this service would be to look for discounted items. Many stores offer drastically reduced prices for floor models, items that have dents or scratches or were returned. You are often able to get the same warranty and return policy on these items but can pay thirty to sixty percent off of the retail price. With a bit of creativity and patience you can save money and get the products you want.