What if you need a new TV, sofa or even a set of tires, but
you're broke? Do you turn to a credit card or a rent-to-own
If you don't have that handy piece of plastic or are already
drowning in card debt, rent-to-own might sound like a good
solution, but consumer advocates say stay away.
"Renting to own furniture, appliances or even car hubcaps --
that's the newest thing -- is a bad idea," says Ed Mierzwinski,
federal consumer program director for the nonprofit advocacy
organization U.S. Public Interest Research Group. Rent-to-own is a
type of predatory lending, he says. "The business model is to
promise ownership, then take it away."
That's because many, although not all, consumers who use
rent-to-own don't have access to credit due to poor or thin credit
files. They may be unbanked or have irregular income sources,
making it hard to save or make regular payments consistently. Fail
to pay on time just once and experts say you might have employees
from Rent-a-Center, Aaron's or your local mom-and-pop RTO store
showing up to take the merchandise back.
The money you sunk in? It's gone, unless you can begin making
payments again to get the item back. "Their technique is to collect
rental fees forever," Mierzwinski says.
Richard May, the public affairs director for the industry trade
group the Association of Progressive Rental Organizations (APRO),
says rent-to-own stores serve consumers who need a new item now,
don't have the money to buy it outright and either can't or don't
want to use credit.
"That's a unique niche that rent-to-own fills," May says.
How does rent-to-own work?
If you're wondering what it's like to rent to own, here's a
step-by-step rundown of how it works:
You look online or go to a local store to find the item you want.
Prices typically aren't listed on the Internet, so you have to
fill out an online form, call or visit the store to get a price
quote, May says.
Stores often quote you the monthly or weekly payment amount
rather than the total cost. There's a reason for that, experts
say. The total can be staggering. "The contract requires you to
pay three or four times the fair market value for the product,"
RTO stores typically offer 12-, 18- or 24-month contracts. The
longest contract is the priciest. "If you do the two-year
contract, you will be paying the most, like double," May says.
Some RTO stores also offer you the option to purchase the item
"same as cash" in a certain time frame, such as 90 or 120 days.
But the "cash price" typically is much higher than you'd find at
a retail store, experts say. For example, Consumer Reports found
a TV at one RTO store with a cash price $150 higher than the
manufacturer's suggested retail price.
Fill out an application.
Most rent-to-own stores advertise that you can get your
merchandise with no credit check. But you do have to fill out an
application with your name, address, phone number, email,
employer -- and even references. "What they want to know is that
you're a real person, you have a job and you can be depended on,"
May says. It can take from 15 minutes to a few hours to verify
the information on a new customer's application, he says.
Make your first payment.
Typically, your first payment is due the day you sign a contract
for one or more items.
Get the goods.
You usually get the item that day or, if it's not in stock, it
might arrive at your home by the following day. "They will
deliver it as quickly as possible," says May.
Make regular payments.
After that, you have to make payments as agreed in the contract
you signed. Depending on the contract, payments might be monthly,
every two weeks or weekly.
In a best-case scenario, you'll eventually make the final
payment and the item will be yours. At that point, you'll likely
have paid double or triple what you'd have spent buying the same
item with cash at a department store, big-box store or online,
according to Consumer Reports. (
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Rent-to-own pitfalls (and perks)
Consumers can use rent-to-own to buy products ranging from tires
and rims for a car, to a new washer and dryer set, to a tuba for
little Timmy, to a diamond engagement ring. The $8.5 billion
industry has about 9,800 stores across all 50 states that sell to 6
million customers a year, according to APRO.
And, APRO says, rent-to-own offers many perks to consumers: no
long-term obligation, the ability to return an item at any time,
loaners during repairs and inclusion of delivery, set-up and
pick-up of the merchandise. Depending on the state law and the
company, a consumer who loses an item due to payment problems might
be able to get the contract reinstated, with credit for past
"There's no credit extended, you don't go into debt. And if at
any time you don't want to make the next payment, you can call the
store and say, 'I don't want it anymore. Come and get it,'" May
That leads to lack of consumer protections, he says. For
example, in many states RTO companies are not required to disclose
APRs, Mierzwinski says. A survey of prices at five RTO stores in
March 2013 by Wisconsin Public Interest Research Group (WISPIRG)
found an average effective APR of 221 percent, and some APRs as
high as 370 percent, according to a WISPIRG report.
RTO stores try to get even more money from customers by
"upselling" them on high-priced warranties, theft insurance and
other products they don't need. "They bait-and-switch you into
buying this, that and the other thing," says Mierzwinski.
Also, the industry has been accused of unscrupulous collection
practices, says Anthony Giorgianni, a writer for Consumer Reports
who investigated the rent-to-own industry.
For example, national chain Rent-a-Center in 2010 denied
allegations but settled a lawsuit brought by the Washington state
attorney general's office for illegal collection tactics that
included banging on doors, swearing and threatening to have
customers thrown in jail.
Saying no to RTO? What to do instead
"It's only a good idea for consumers who have an actual
short-term need," Mierzwinski says.
But consumers considering RTO due to a difficult financial
situation should look at alternatives, says Giorgianni. Experts say
there are three main options:
Save up for the purchase.
This is the best choice, consumer advocates say. By putting money
aside and then shopping around, you'll save in two ways: by
finding the best deal on the item you want and by not spending
extra to pay over time.
Pay with a credit card.
Even if you use a high-interest card, you'll pay much less than
with rent-to-own, Mierzwinski says -- as long as you pay more
than the minimum amount due each month. For example, a consumer
who uses a card with 29 percent interest to buy a 32-inch LED TV
at Best Buy, and pays the same amount monthly that they'd shell
out for a 12-month RTO contract, would have the TV paid off in
six months and would save $600. (
When using a credit card with 18 percent APR, consumers could pay
less than half and often about a quarter of what they'd pay with
RTO contract, according to the WISPIRG report.
Some experts recommend hitting yard sales, going to Goodwill or
looking on Craigslist, but Mierzwinski says these choices open up
other concerns about the best way to buy a used product. Another
option, he says, is to opt for a new product with fewer
But, whatever you do, steer clear of RTO, Mierzwinski says:
"Renting to own is just going to get you deeper in debt."
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