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Beware of the Real Cost of Rent-to-Own Stores for Furniture, Appliances & Electronics

By Matt Breed

tv in cartA few weeks ago, I sat in the parking lot at a local plaza watching people file in and out of one of those rent-to-own stores.

Without naming names, let’s just say that this particular store is a big one with locations throughout the country. I was astounded by how much business this place was getting.

It’s no secret that buyers end up paying far more than the sticker price at these stores. But are patrons even aware of this, and do they even care? What is it that keeps rent-to-own stores in business?

What Is a Rent-to-Own Store?

In a rent-to-own transaction, customers rent an item – typically a major household appliance or piece of furniture – for a monthly cost that’s usually much lower than a monthly loan payment would be. The rate is attractive because it seems more affordable than an up-front purchase or typical payment plan. After completing payment in full over the term of the rental, the customer owns the item. But that rental period is a much longer one, and after calculating the total expense, the buyer ends up paying far more than a conventional loan would have demanded.

Are Rent-to-Own Stores a Scam?

Depending on who you ask, a rent-to-own store could be a good place to get some furniture or electronics as a short-term purchase. Or it could be one of the biggest scams around. The most telling aspect of the way these stores do business is the pricing. In most of these establishments, prices are not marked. This usually makes shopping rather difficult. Fortunately, there are usually well-trained associates ready to help you find out prices and lease terms. (Please note the sarcasm.)

“Scam” is a pretty harsh term, but depending on how you define the word, you may just feel that it applies here.

Reason 1: These stores frequently come under fire with entities such as the Better Business Bureau and other consumer protection organizations for allegedly using deceptive sales practices, or failure to disclose interest rates. Advocacy groups that have attacked rent-to-own business have successfully won legal battles to change laws in Minnesota, New Jersey, and Wisconsin.

Reason 2: These stores are often less than forthcoming with their prices, but they are legally required to do so. In other words, if you ask, they have to tell you.

Reason 3: 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,” and the product can usually be returned at any time during the lease period. (Fees usually apply.)

In a stroke of luck, while writing this, I got a flier in the mail from the same store that I was recently watching. This particular company doesn’t seem to have a problem disclosing their “buy now” price, along with the rent-to-own price. I guess they figure that either their customers do not care about grossly overpaying for their products, or they are not smart enough to do the math and realize how much they will actually pay. We smart shoppers (yes, you are included in that “we”), are smart enough. Would you like to see some of these advertised “deals”?

40″ LCD TV

  • Buy it Now Price: $1,199.99
  • Rent-to-Own Price: $1,919.76
  • Interest Rate: 60%
  • Lowest Price Found for Same Product (new): $499.00

23 Cu. Ft. Refrigerator

  • Buy it Now Price: $1,499.99
  • Rent-to-Own Price: $2,399.76
  • Interest Rate: 60%
  • Lowest Price Found for Same Product (new): $699.00

XBox 360 Halo Bundle

  • Buy it Now Price: $629.99
  • Rent-to-Own Price: $839.88
  • Interest Rate: 33%
  • Lowest Price Found for Same Product (new): $399.00

The Fight Against Rent-to-Own

Many consumer advocate organizations have put together campaigns to combat the often deceptive and misleading practices used by rent-to-own stores. And they don’t stop at mere meetings or a few angry letters. Many of these campaigns seek stricter state legislation on these stores, citing predatory lending practices, failure to properly disclose rates, hidden fees, and many other deceptive methods of operation. Some states are much more lax about regulation than others, so know your local laws before you decide to “fight the good fight.”

How to Save Yourself From Paying Too Much

If you decide (for whatever reason) that rent to own is for you, do yourself a favor and crunch the numbers before you agree to any terms. Far too many consumers do not fully understand the financial commitment that they’ll be on the hook for, and it’s too easy to end up holding the bag. I would hate to see anyone paying $800 for a $250 plasma or LCD television set, especially when I think about how long of a commitment a two-year lease really is.

For all you know, your leased item could be obsolete by the time you pay it off! If the deal seems on the up and up, look for language in the lease that leaves you liable for things such as damage, theft from home burglary, returns, or any other variable that could come up. The lease is likely costing you plenty, so don’t read the fine print so fees don’t sneak up on you as well.

Final Word

Simply calling rent-to-own a scam may seem extreme, but it’s close enough to make you think twice before committing. Every business is out to make a profit, but there’s a limit on how much of a burden the customer should bear. I will not soon be patronizing a rent-to-own store. What about you?

I’m also curious to know whether any you have had any experiences with rent to own stores (positive or negative). Maybe your outlook is completely different than my own. If there is anything you feel you can add here, please do not hesitate to share. And don’t forget, do the math!

(photo credit: Shutterstock)

Matt Breed
You are looking at Matthew Breed. He is a 30 year old sports nerd who lives in North Florida with his fiancee, Sarah. Originally in school for a Business degree that did not work out due to capricious youth and irresponsibility, he is currently "getting past" his Peter Pan syndrome and attends classes for a degree in Information Technology while working full time. His care for personal finance stems from a modest upbringing with fiscally responsible parents who highly value education and frown upon frivolity.

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  • Peter S

    I’ve used them before in my younger (read more ignorant and naive) days. We wanted furniture and couldn’t afford to buy it outright. I don’t think the furniture stores back then offered the 18 months no interest deals that we see more often now. We had no money (or common sense) so got our couches through a rent to own place. I don’t think we got a horrible deal on them, but they weren’t the best deal, either.

    Looking at the prices above, I can’t even imagine paying that for something less essential than furniture (a big screen TV – we’d do without for a bit and save for a CRT if we really needed one and people are practically tossing those out now).

    I don’t know if I’d count these as a scam. You’re basically trying to put something on layaway, but with the prospect of using it immediately. That has a cost associated. I don’t think too many people think “I’m getting a great deal” when they use these places, but they do likely tend to think “I can get this NOW”. When you have that mentality, overall/future cost doesn’t really factor in too much.

    Now – I know better to save up for a little bit, get something at a garage sale, and save up for the next upgrade. I’ve toned down the whole “Gotta have it now” buying attitude into a “I can wait” attitude.

    • Matt Breed

      I guess “scam” is kind of a relative term. Personally, if I pay far more for something than it is worth, I feel scammed. Sure, these places don’t particularly specialize in deception, but for those prices, I think it is a fitting term.

      • An RTO Pro

        Matt, Have you ever purchased a major home item on a credit card? Did you pay it off in full, pay larger amts than required or did you pay monthly minimum? If you pay a monthly minimum you pay FAR more than in a rent to own store. The figures may have changed over the years, but used to be an $1800 purchase paying the monthly min. would take you 21 YEARS, yes I said YEARS to pay off. If it broke would they fix it? NO! If you lost your job, could you take it back? NO! AND would you later be able to get it back without losing what you had already put into it?? NO, NO, NO! Rent to own has so much more to it than the average transaction. Got cash to make your purchase? Do it….your best deal. Can wait for it?…..Lay it away…Good option. But if you need it right away, for my money RTO beats credit card every time. All information about cost is disclosed up front right in your contract. Not to mention the fact that ESPECIALLY today, there are more and more people who do not have the kind of credit needed for these purchases. Don’t sit outside and watch a store. Don’t go by the advertisement. Walk into a store. Meet one of us who are proudly rent to own professionals. Get to know us, what we do, who our customers are, and what their needs are before you tilting at windmills. Are there bad apples in the industry….You betcha, just as there are in most every industry out there. Really get to know the industry before you pass judgement. As one other person said….rent to own is not for everyone, but you just might be surprised at how much better someones life can be that is in real need of our services.

  • Lowell

    Rent to Own is for sure not for everybody. I would highly recommend that if you can buy whatever it is that you are looking for at a regular retail establishment then go down that road. People get into hot water and waste all kinds of money due to their need for instant gratification. These are the same people that may never be financially sound. Rent to Own caters to that specific demographic. The one thing that the RTO world does do well that I don’t think that too many people recognize is help people in need. Here’s the scenario, a family of five are on a very strict budget with no extras to spend and their washer goes out or their fridge dies on a hot summer day and they have no way to replace it. Guess what? Fill out a very short order form and put down a small payment if any and with in twenty four hours you have a brand new or lightly used appliance sitting in your home. That wouldn’t sound so terrible if you were in that position. But unfortunately people want it all and instead of saving for something they now have five things on rent and have a weekly payment of three hundred dollars and have other people scratching their heads saying wow these rent to own stores are rip off artists….

  • Mjyee1960

    I have never had the need to rent to own, but if you can not out right buy your goods and you FEEL the need to pocess it immediately then they give you the ability.

    Your regard for these business owners shows your ignorance of the business and capital RISK they have when renting goods with no title. You live in an ivory tower with a santized view that looks great but in reality does not contemplate risk.

  • http://www.facebook.com/wanda.c.mcdaniel Wanda Cobb McDaniel

    I have never used the Rent to Own option, but it can’t be any bigger scam than credit cards!

  • Rick

    I have to say any Adult that rents to own is responsible for his or her decision. I hate more government interference trying to protect people from their own stupidity.

  • Tmarkross01

    If you sign a document, you’re on the hook for what it says. It is YOUR responsibility to know the details. If you are stupid, blame your mother, don’t blame a store.

  • Joshua Smith

    The profit margins for these companies are not any better than any other business. Consider this, if you buy something at a retail location often times the mark up is 70% over whole sale. For a lease to own store that has to purchase at retail the mark up is the same. The reason for the mark up is simple. Your dealing with “bad credit” and usually when dealing with this customer base the expense to collect on these payments is outragous. Every location charges off between 3% to 20% (depending on the area and manager) of their bottom line just from people who don’t pay. If everyone paid their bills on time the prices go down. Have you every bought jewelery? The standard mark up is between 200% to 500%. Yet no one is attaching Zales or Jared’s. An otterbox case at Walmart is $50 but being an employee I know they get them for $5. It all around you. I bought my home for $115K but in the end I will spend $250k. It all in what is it worth for you and for many people rent to own provides people with items that they would not normally be able to afford. It’s a service that helps hard working people get the things they want and need.

  • getitright

    What a snarky article…As a rent to own veteran of neatly ten years, I am fully aware of the positives and negatives of this industry. Here is a couple things to keep in mind the next time you feel you need to write your opinion and call it “journalism”. 1. There are significant risks RTO companies take by not pulling a credit report. We do not know anything about the customer besides what is filled out on a quick information sheet. 2. Many companies (mine included) offer free delivery and set up. 3.We also offer free service which includes debugging computers/laptops, fixing appliances, TV’s and furniture. 3. No long term commitment. If the customer can no longer afford to make their payment, they return the merchandise and get it back when they can afford it and we pick up where they left off.

    Alot of customers are very grateful we are here so they can have nice things like everyone else. In fact, we have alot of folks that get things at Christmas time for their family and pay them off at tax time…utilizing the 90 or 120 days same as cash option in which the customer really does not pay much more that retail. It’s not as bad as you think, Matt. Please research or talk to actual rent to own customers vs. going by what you can see from a parking lot and what you read on the internet.

  • fartknocker

    Your are an idiot Matt. Not all people can afford to go out and buy new stuff. RTO is a lifesaver for these ppl. Ever think from another POV, or just your own?

    • Mike Fuller

      no its a fucking scam, save and buy idiot

    • bobreyray

      Don’t call people idiots if you don’t know the definition it makes you look like an idiot(iq around 40) and if the man had an iq around 40 he wouldn’t be typing on the internet trying to help people.

  • kymell

    I think rent to own, lease to own and even financing a car is a really bad idea for a consumer. Anytime you have pay twice the retail value for anything to own the item it is as bad as being indebted to a loan shark. and since the profit margins are so small according to rent to own proprietors it seems like a bad idea for anyone involved.

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