Small Business

How Does Rent A Center Really Work

By David Krug David Krug is the CEO & President of Bankovia. He's a lifelong expat who has lived in the Philippines, Mexico, Thailand, and Colombia. When he's not reading about cryptocurrencies, he's researching the latest personal finance software. 4 minute read

A few weeks ago, I waited in the parking lot of a nearby shopping center to observe customers come and leave from one of those rent-to-own establishments.

We will not reveal the name of the retailer, but suffice it to say that it is a national chain with several outlets. I couldn’t believe how busy this restaurant was.

It’s no secret that people who shop at these establishments typically spend far more than the listed price. The question is whether or not customers know or care about this. To what do you attribute the continued success of rent-to-own businesses?

What Exactly Is a Rent-to-Own Store?

Customers in a rent-to-own transaction pay a monthly fee that is normally far less than the monthly payment on a loan, and then eventually own the item they rented. This cost is appealing since it is lower than what one would pay for a one-time purchase or on a standard payment plan.

When the consumer has paid for the item in full during the course of the rental agreement, they will have taken ownership of it. However, the length of the renting period is far more than that required by a typical loan, therefore the final cost to the buyer is much higher.

Is it a Scam to Rent-to-Own Stores?

Some people recommend visiting a rent-to-own shop in order to make a temporary furniture or electronics purchase, while others advise against doing so. It might be a huge hoax, though.

Retailers’ pricing policies reveal the most about how they operate. Most of these businesses don’t clearly display their prices. The result is frequently a frustrating shopping experience. 

Luckily, you can generally find well-informed staff members willing to assist you in learning about pricing and leasing conditions. (This is a facetious request.) The word “scam” is rather strong, but you could find it appropriate here depending on your definition of the term.

One major reason is that the BBB and other consumer advocacy groups regularly file complaints against these businesses for what they perceive to be misleading advertising and business practices, such as hiding interest rates. In states like Minnesota, New Jersey, and Wisconsin, anti-rent-to-own advocacy groups have been successful in changing the legislation through the court system.

The second justification is that these shops aren’t always up forward with their pricing, despite the fact that they must by law. That is to say, they must respond truthfully to your questions.

Thirdly, interest rates of 100% and above are common when opting for the rent-to-own route. Since the rent-to-own option is not a loan but a “lease,” and since the product is often returnable at any point during the lease period, there is no legal basis for concern. (Usually there are costs involved.)

The shop I have been keeping an eye on just so happened to send me a flyer as I was typing this. The “buy now” pricing and the rent-to-own price are both shown on the company’s website, which they have no qualms about doing. They must assume that their consumers either do not care that they are paying an exorbitant price, or that they are too stupid to figure out the true cost of the goods. We savvy consumers (and you’re included in this) know better. Do you want to see some of these “bargains” that have been advertised?

40″ LCD TV

  • List Price: $1,199.99 Buy It Now!
  • Prices for Lease Purchase Agreements start at $1,919.76
  • Annual Percentage Rate of Interest: 60%
  • Similar New Product Found at Lowest Price Ever, $499.00

23 Cu. Ft. Refrigerator

  • The current asking price is $1,499.99, and it is available for immediate purchase.
  • Buy-with-Rental Payment: $2,399.76
  • Annual Percentage Rate of Interest: 60%
  • Finding the Lowest Price for the Same New Product: $699.00

XBox 360 Halo Bundle

  • The current price, as of this writing, is $629.99.
  • Investment Opportunity: $839.88 per Month Rent-to-Own
  • Rate of Interest, 33%
  • New Product Found at Lowest Price of $399.00

The Struggle Against Rent-to-Own

Campaigns have been organized by several consumer-rights groups to counter the rent-to-own industry’s dishonest and misleading business methods. And it’s not like they’ll settle with a few heated letters or a meeting.

Predatory loan tactics, failure to adequately disclose rates, hidden fees, and other deceptive ways of operation are often cited as reasons for stronger state law on these businesses, since they are the target of many of the campaigns calling for it. Know the laws in your state before you decide to “fight the good fight,” as some of them are significantly more lenient than others.

How to Avoid Paying Excessive Fees

If you think a rent-to-own arrangement would be right for you, it’s in your best interest to examine the math before making any commitments. It is much too simple for customers to find themselves holding the bag since so many of them do not completely comprehend the financial commitment that they will be on the hook for. Considering the commitment of a two-year lease, I cringe at the thought of someone shelling out $800 for a $250 plasma or LCD TV.

Your rented item may become outdated before you finish making payments on it. If everything else about the transaction checks out, you should still examine the lease for any clauses that might hold you responsible for repairs, theft in the event of a house invasion, returns, or any other contingencies. You’re already spending a lot on rent, so be sure no additional charges pop up in the tiny print.

Bottom Line

Calling rent-to-own a fraud is an extreme statement, but it’s near enough to make you think twice before making a commitment. It’s understandable that businesses want to make a profit, but customers should only have to pay so much. I have no plans to start shopping at a rent-to-own retailer anytime soon. Where do you stand?

Aside from that, I was wondering if anyone here had any first-hand experience with rent-to-own shops (positive or negative). Perhaps we have fundamentally different worldviews. If you have something to contribute, please do so. To top it all off, don’t forget to crunch some numbers!

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