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Rent to own? There are better alternatives

It may work well for someone who needs to furnish an apartment for a short time. Otherwise, think again.

By MSN Money Partner Jun 2, 2014 1:19PM

This post comes from Allison Martin at partner site Money Talks News.


Money Talks News on MSN Money"You can take home a brand-new 42-inch flat-screen today for only $25 a week!" Sound familiar?


Looks can be deceiving, especially in the world of rent-to-own, where consumers can end up paying double or triple the normal retail price to purchase goods.


Nevertheless, the industry is going strong, with 4.8 million customers and $8.5 billion in annual revenue in 2012, according to the Association of Progressive Rental Organizations, an industry group.

What's the attraction?

Why do people shop at rent-to-own businesses?

  • If you have bad credit or no credit, no problem. Approval is practically guaranteed.
  • Because most rent-to-own companies don't report to the major credit bureaus, your credit won't be damaged further if you fail to make timely payments or pay at all. On the other hand, a record of timely payments will do absolutely nothing to improve your credit score.
  • There's an illusion of affordability. That expensive bedroom set you want seems within your reach when you're looking at only the low monthly payments. Says Credit.com's Gerri Detweiler, "The trap with rent-to-own items is the same trap we fall into with credit cards -- focusing on the minimum payment and not the total cost."
  • They offer convenience and flexibility. The approval is usually rapid, and many major rent-to-own outlets deliver. To make the deal even more appealing, they grant you the ability to modify the agreement over the duration of the contract -- but that could come at a cost. If you chose to drag the the payments out, you could be overpaying even more.

The sad reality

In 2011, Consumer Reports conducted an extensive investigation of rent-to-own stores. It said:

Consider the deal for a $612 Toshiba laptop computer we found at one rent-to-own store. It was being offered at $38.99 a week for 48 weeks, for a total of $1,872, excluding sales tax and other charges. That's the same as buying the laptop at the manufacturer's suggested retail price and financing it at an interest rate of 311 percent. You could buy three of the laptops outright for that $1,872.

CNN Money reported last year:

At Buddy's Rents, for example, you can rent-to-own an LG 42-inch plasma TV for as little as $22.99 a week. You can return the TV any time if you don't want to keep it. But in order to own it, you need to make 78 payments or a total of $1,793. That compares to a retail price of $446 on Amazon.com.
This is fairly standard for rent-to-own agreements. In most cases, making enough payments to actually own the item will cost you more than double the amount it would cost to buy it upfront from a traditional retailer.

Last year, Kmart decided it wanted a piece of the rent-to-own pie. Says Bloomberg:

The Lease-to-Own program touts instant gratification -- customers without credit take a product home right away, make biweekly payments, then decide whether to buy out or return the product. A typical deal could turn a $300 television into a $415 purchase.

Alternatives

Rent-to-own may work well for someone who needs to furnish an apartment for a short amount of time. But if you want to buy furniture, electronics and the other items that are often sold at these stores, there are much better alternatives.


And, says CNN Money, the last government study on the issue, from 2000, showed that 70 percent of rent-to-own customers end up buying the items they've taken home from rent-to-A senior man watching TV © Image Source, Getty Imagesown stores.

  • Be patient. Save the money you would have paid to the rent-to-own store until you have enough to purchase the item at the regular price.
  • Wait for a sale. Better yet, save your money and then purchase the item when it goes on sale.
  • Buy refurbished. There's nothing wrong with refurbished items and they come at a greatly discounted price.
  • Buy secondhand. Try Craigslist, yard sales, consignment shops or thrift stores. Even if you have to take care of the delivery, you could end up saving a bundle.
  • Boost your credit score. If you have to finance the item, take some time to build your credit score and then apply for a credit card with a 0 percent interest introductory offer.

If you go to a rent-to-own store, how can you protect yourself from a really bad deal? A total of 47 states have various consumer protections in place. But take these steps:

  • Cash price vs. rental price. Search online for the retail price of the item you are considering renting. Compare that with the total cost at the rent-to-own store, including the monthly payment, down payment and duration of the agreement.
  • Read the contract. You need to understand every detail.
  • Condition. Is the item at the rent-to-own store new or gently used?
  • Hidden fees. Are there any penalties associated with late payments, early returns or premature payoffs?
  • Reporting practices. Although it's uncommon, ask if the store reports payments to the three major credit bureaus.

What is your experience with rent-to-own companies? Was it worth it?


More from Money Talks News

68Comments
Jun 2, 2014 7:07PM
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It seems absolutely insane, and yet there's a robust market for this.

I don't get it, and I would rather dig ditches for a living than talk a poor person into something like this. I guess I would never excel as a salesperson in this day and age.

Jun 2, 2014 6:39PM
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It's sad that people are so bad at math that they need someone to tell them this.
Jun 2, 2014 7:44PM
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A tenant left an expensive item that was owned by Aaron's rentals, so I went to the store to let them know so they could get it back! They were very rude and pretty much told me to mind my own business! Since it was my home the tenant had trashed I thought it was my business and I was trying to help the store! I just wanted the item moved out! Obviously these stores really don't care who buys from them as long as they do!

Jun 2, 2014 11:23PM
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The rent to own business model is the same as the payday loan and cash for title loan.  It capitalizes on ignorance and/or stupidity if they are frequent flyers.  Unfortunately these types of business will never go away and there will never be a shortage of sheep to follow them.
Jun 2, 2014 5:42PM
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You MUST be joking  !!   Someone actually wrote and article showing how this is a lousy deal ??   Duhhhhhhhh.  Must be written for Mrs Lewis's sixth grade class/
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The rental agreement on that three-year-old laptop, comes with a list of do's and dont's which often doesn't allow for modification in any way..
So once you're, say, two years into your contract, you could be stuck with payments on a 5 year old piece of technology that you have no way of upgrading.

-Thinking of just returning it and cancelling your contract, once it begins to slow down and act buggy? The sad truth is that you've been paying so much on it, that it will have been difficult to save any cash for your next computer purchase. And the viscious cycle begins...

Jun 2, 2014 5:43PM
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Most savvy rent to own customers know all you have to do is file a police report of a burglary, hide  the RTO  items, then they are yours for free! I went to many burglaries in public housing areas where the front door was damaged (its ok...tax payers will replace them) and the only thing taken were the RTO items. Go figure....
Jun 3, 2014 8:12AM
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Tim from VT got it right, in part.  These deals are for two segments of society; those having no education, and the biggest segment, those too lazy to reason things out.  Then, there is the added problem of "kids" wanting everything "NOW!," without understanding the actual costs of anything.  This includes everything in life.

Too many in today's world are not willing to wait, or even try, to actually earn enough money, and when they see our national leaders doing the same thing, buying tomorrow with no thought, concern, or money today, and no thought of the actual consequences, where is the impetus for "personal responsibility."

Jun 2, 2014 9:03PM
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This should be against the law... this is worse than robbery with a gun. A sin of taking advantage of the ignorant.
Jun 3, 2014 8:40AM
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Our country breeds ignorance like its a trend nowadays. Make more money off them by robbing them because they are too dumb to know it. Bad credit, bad job references, bad lifestyle and habits (drugs and alcohol) and bad grades in school makes for a stupid person. But, there is much money to made off these kinds idiots and the business is growing fast.
Jun 3, 2014 8:27AM
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This industry specifically targets the poor and uneducated. 
It's really a shame that businesses like this feed off the most vulnerable in society. 

One of the reasons many poor stay poor no matter how hard they work is because there are numerous industries that thrive off taking advantage of the poor. 
Jun 2, 2014 8:04PM
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You Can Rent To Own Your Old House Back!

Entrepreneurs in the area are doing rent to own homes that have been foreclosed on and fixed up a little.

Nothing Ethical, Just Pure Old Greed!

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Try getting a loan at Title Max...you WILL lose your car before you pay it off.  300 + percent interest...and its all legal.  And once they repo your car...they don't have to give it back even though you pay off the loan.  Uneducated people with poor credit making desperate choices.
Jun 2, 2014 9:59PM
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Here's an actual success story:  I approached my local rent-to-own store to see if they had a scratch-and-dent used refrigerator they would sell me cheap for cash and it turns out they did.  At the time we were moving into a house I had just bought, and my lover was determined we HAD to get a side-by-side ice-dispensing refrigerator, and I was determined there way no way in Hades I was paying the price of a new one (geez, I've bought cars cheaper than that!).  So we both got what we wanted - I paid a decent price for a used one that worked fine, and he made sure it had all the bells and whistles to make him happy.  Most people don't think about that option, but the managers are taking a loss on many of their repoed and obviously used items and would be thrilled to make a buck on them instead of writing it off as a total loss.
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ok so this article pointed out that you may want to get a credit card to purchase something because of a low APR.  Well these rent to own places will get anyone credit without having a cosigner.  Theres not too many other ways to even get credit if you dont have a cosigner.
oh and you could get credit by going to bank and getting a special prepaid card where you pay it off each month (its all your money though) and after a year or so , they say TA DAHHH, you can have a credit card with $500 limit......

Jun 2, 2014 8:16PM
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The American Dream. Get whatever you want whether you can afford it or not. Instant gratification, damn the conxequences.

It's Darwinian; Rent-to-Own thins the herd until all we have is the eternally broke and the uber-folk.
Jun 3, 2014 9:27AM
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Rent To Own customers are the same people who caused the credit crisis in the first place - and they just keep going.  Why not?  They never really have to pay for anything.  They declare bankruptcy, family bails them out, taxpayers take the hit, businesses pass along the cost to paying customers.  We assume it's just kids - but my 50 year old sister does the same thing.
Jun 3, 2014 11:16AM
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ONe of America's greatest freedoms is the freedom to be stupid.  Some people take advantage of this right on a daily basis, or at least weekly as they drive down to R-A-C to make their weekly payment.
Jun 3, 2014 10:59AM
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Rent to own is never a good idea. But Rent to own companies charge so much more because their loss rate is extremely high. They have to make up for the deadbeat customers who don't pay and keep the merchandise from the payments of the customers that actually pay.
Jun 3, 2014 10:02AM
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Welfare nation.  It is simple and easy.  White trash and Mexican trash...whatever, ethnicity...trash.  All the rest is bull.  It will not change.  Checks are coming and all this "investment' crap is just that.  Get a new TV!
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