Rent-to-Own is a Bad Deal

If you’ve never heard of it, rent-to-own (RTO) is a process where you rent an item (typically furniture or electronics) for a set amount of months and when you finish out the term of the rental agreement, you get to keep the item as your own. However, there are some things to consider when using their services such as the actual cost and what type of product you are getting. Chances are, you will get a slightly used product such as the one in the picture below. ;-)

Old TV

Finances Behind the Transaction

The majority of RTO transactions are weekly terms. In other words, you pay a weekly payment to the company and they allow you to continue to rent the item. These payments will continue until the end of the term which can be 12-24 months in length. After the end of the term, the renter is deemed to now own the product. However, if you miss just one weekly payment over the term, you are deemed to have broken the contract and they will repossess the item. You will also lose any “ownership” credits that you have earned for previous payments.

The real ripoff is in the amount of payments. Let’s look at an example given from a recent article at CNN Money. Let’s say that a company rents a $1,000 TV to a customer for $100 per month for a term of 24 months. At the end of the 24 months, the customer has paid a total of $2,400 for a $1,000 TV that is now 2 years old! That is like financing it at 103% over those two years! You want to know the real thing that bugs me about these RTO companies? They are doing well in this economy because they are preying on the weak.

With this type of transaction, you would be better off financing the item on a store credit card at 25%. However, I do not recommend that. I recommend that you delay the gratification of purchasing a new TV and save the cash for it. Better yet, why not purchase a TV from a site such as Craigslist or eBay? I have done plenty of deals on both sites and got some great bargains.

The Product That You Receive

Chances are good that the product that you rent has already been rented before. So, who in their right mind would want to pay the astronomical “finance charges” to own a TV that has been used before? I know I sure wouldn’t. 

That goes with all of the other items that they sell such as furniture. There are so many other alternatives to RTO so why not explore them? I know some people do not have the cash or credit to pay for these items, but I would not call a TV or a barcalounger a “need”

Has anyone had experience with a rent-to-own company? 

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My name is Adam and I am in debt. Yep, I came out and said it in the first sentence. I hope that shows you how passionate I am about getting out of debt and enjoying life in the process. Join my wife and me on our journey and be sure to contribute to the great discussions. You can get FREE email updates about the site as soon as they are posted. If you would like to hear our whole story, visit my about page. Thanks for visiting!

10 Responses to Rent-to-Own is a Bad Deal
  1. RainyDaySaver
    June 3, 2009 | 2:54 PM

    I’ve always thought the rent-to-own idea was ridiculous!

    RainyDaySaver’s last blog post..Obsessing over 401(k)

  2. Mrs. Micah
    June 3, 2009 | 3:37 PM

    Worse yet, people do that with furniture. Now I can see RTO as another way of renting if you’re moving from one town to another, your moving van hasn’t come yet but you have to be there for work so you need a bed & chair or something. Feels skeevy, but probably not much worse than a hotel.

    But while I don’t mind used furniture per se–something about the sketches me out. I suppose it’s like one doesn’t mind dating a person who has dated other people before, but you don’t want to date the furniture that’s slept with everyone in the office.

    Mrs. Micah’s last blog post..May’s Budget Successes and Failures

  3. Matt Jabs
    June 4, 2009 | 9:16 AM

    Oh my word, I would never rent-to-own! :-)

    Matt Jabs’s last blog post..Frugalfice Testimonies from around the PF Twittersphere

  4. SailboatFamily
    June 4, 2009 | 2:45 PM

    RTO stores are a fantastic trolling ground for those people that P.T. Barnum told us about. The only folks who win in this deal are the RTO companies. They have slick advertisements, and even slicker salesmen.

    It is sad that good ole Magic Johnson has pimped himself out to these folks. Countless people are lining up to pay more for a used item than it would cost new because of his “endorsement.” But hey, good for him. If someone is silly enough to go this route, then the money might as well end up in his pocket as an endoresment fee … the purchaser must not have needed the money in the first place.

    You know, maybe I should open up one of these stores … hmmmmm…..

    SailboatFamily’s last blog post..Keeping up with Senior Jones

  5. Bible Money Matters
    June 5, 2009 | 1:32 PM

    Rent to own is never a good idea. Save up cash and pay for it outright. It’ll be much more satisfying!

    Rent to own = RTO= Really ticked off (cause you spent way too much)

    Bible Money Matters’s last blog post..Personal Finance Bible Verse Of The Day: More Blessed To Give

  6. Wojciech @ Fiscal Fizzle
    June 9, 2009 | 8:10 PM

    This perplexes me almost as much as people who lease vehicles. Neither has really made much sense in my head, but there are those who will sing the praises of both.

    Oh well…

    Wojciech @ Fiscal Fizzle’s last blog post..Things I Learned on Our Trip to Ohio

  7. Ron
    September 4, 2012 | 10:55 AM

    I totally agree, I tried it once, last year, actually. I got one of those netbooks and the thing was a slow piece of crap, after 2 months, I let it go back never rent laptops from them my aunt actually payed for a dell laptop that she has nothing but trouble with, a waist of money the place we rented from was rent one. they will rip you off. for exzample, they said I had to pay 80 bucks for 4 months, for that crappy netbook I had and to top it off, it was used. never again.

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