The rent to own business is big business here in the U.S., and with rental companies such as Rent-a-Center and Aarons, two of the top rent to own companies, offering no credit checks, small weekly payments, and you can take your item home today, it’s no wonder.
On the surface it sounds like a good deal to millions who struggle to come up with a large chunk of money to pay for a nice computer, a large screen TV, pretty furniture, or appliances. But when you take a deeper look you find out differently.
The prices in the store are usually competitive and are sometimes even cheaper than at other retail outlets, and the ability to finance the purchase is really convenient for those without a lot of upfront money.
But at what cost?
Let’s find out by demonstrating how these companies do business.
Rent to Own is for Suckers
Rent to own companies advertise their merchandise at low prices that are competitive or even lower than other retailers, while stressing that they have easy weekly or monthly payments. That’s how they get people in the door. But once they get you into the store and get you interested in the “deals” they have, their #1 goal is to sign you up for one of their weekly or monthly payment plans.
This is where it gets sticky.
When people sign up for these payments, many don’t really realize what they’re getting themselves into.
An investigation by Consumer Reports shows that when you rent to own, you can end up paying up to 311% interest on those items that they make so easy and convenient to take home.
In the article, Consumer Reports demonstrates examples of rent to own purchases where a $600 computer ended up actually costing the customer $1,900 after less than a year of payments, as well as a washer/dryer combo for $1,000 that ended up costing $2,700 after two and a half years for an interest rate of 100%.
With great “deals” like that it’s no wonder the people that frequent these places wonder where all their money goes every month.
It’s a total ripoff.
On top of that, many companies have harassed and threatened customers who were late on payments. That kind of behavior caused Rent-a-Center to settle a class action lawsuit in 2007.
The rent to own business has grown quite a bit over the past few years, mostly due to the lower and middle classes getting squeezed in a bad economy.
But when it comes down to it, it’s not the bad economy causing these customers to get ripped off, it’s a lack of knowledge about sound financial principles. If you walk up to the average customer in a rent to own store and asked them to pay you $1,900 for a computer that has a $600 price tag on it, they would laugh in your face, but then they’ll turn right around and sign a rent to own agreement that does exactly the same thing.
This is why some people never get ahead.
If you read Celebrating Financial Freedom regularly, you know how I feel about using debt to finance your life. It is never a good deal and always causes you to spend more than if you had just paid cash.
Rent to own schemes are at the extreme end of the credit spectrum and you should absolutely avoid them at all costs, or you, my friend, will end up losing your shirt.
Ever had any experience with renting to own?
Tell me about it in the comments.