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.
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?