Enticing Rent-to-Own Payment Plans on Products Drain Your Bank Account Up to 300% More Than Making the Purchase Flat Out

131106153921-rent-to-own-tv-620xa$38 a month for that TV sounds like a steal.  That is precisely the point – to make you think it is a steal.  In a sense, it is a steal.  A steal right out of your wallet with your permission.  When consumers choose the rent-to-own option versus the flat out purchase, they end up spending two to three times the original retail price.  Any time when something isn’t fully paid for up front, there is always some provision of the contract that requires consumers to pay more for the business to essentially loan the item to consumer, whether that be in the form of interest or biweekly/monthly payments for a set period of time.  It is imperative to decide how necessary that item is at that moment before moving forward, because by participating in deals such as rent-to-own frequently, consumers can end up wasting thousands of dollars over time.  Despite these facts, the shocking truth is that the rent-to-own industry is alive and well, and lucrative for that matter.  The Association of Progressive Rental Organizations contends that the industry has 4.8 million customers and $8.5 billion of annual revenue as of the year 2012.

Typically these products do not require good credit, and at times they do not require credit at all.  To me, this is a huge red flag.  It seems as though the businesses who are willing to do business with someone with bad credit or no credit at all, are always trying to take advantage of their customers for the rationalization that they are assuming more of a risk than they would with other customers.  At that point, people with bad credit or no credit get caught in a cycle of paying out the window for things that don’t necessarily need that much money going into them.

For someone who does not have credit at all, it is relatively easy to get introductory credit cards.  But this can be a double-edged sword as well.  As the American system does want people to have credit cards, a credit card can be extremely detrimental to credit when used improperly.  A safe way of using a credit card is using less than 30% of the available limit per month.  This indicates to credit bureaus that the cardholder is financially responsible and does not need to max out their credit card at all time, which in turn gives them very little wiggle room for any contingencies that may come up. Paying that credit card in full every month is also a great idea, because otherwise interest gets added to the balance, and that can accumulate very quickly.  American Express credit cards always require that the bills is paid off in full every month.  This is a best practice for everyone – AmEx and non-AmEx holders alike.

For consumers out there with bad credit, work on your credit score before making a large purchase.  Lower credit scores give businesses a reason to take advantage of you.  They can charge high interest rates.  A better option is to talk to a financial specialist on how to rapidly raise your credit score before making a large purchase to assure that you are getting the best rates.  In a past article that I wrote entitled, “Thinking Of Buying a Home?  Follow These Tips:”, I detailed a few different ways to hike up that credit score – fast – before moving forward with a large purchase.

Rent-to-own businesses do not report to the major credit bureaus.  Therefore, obtaining a rent-to-own product does not help or hurt ones credit score.  For those out there with no credit, rent-to-own will not create credit for you, nor will it improve your credit score.

Similar to credit cards, rent-to-own items create an enticing, convincing trap that is just waiting for us to fall in to.  While credit cards are not bad per say, they are a necessary evil in the United States that can be quite beneficial if used correctly.  However, rent-to-own items are not necessary whatsoever.  It is easy to focus on the minimum cost and not the total cost.  A great tool to combat this is to write down the retail price of the rent-to-own item and then calculate what all of the monthly payments over the set period of time would end up costing in the end.  By doing this exercise, it will very quickly put in to perspective how much money will be wasted when it is all said and done.  Also, the longer that the payments take for the renter to fully own the product, the more money that can end up being spent.

According to an article recently published by Bloomberg, Kmart has recently hopped on the rent-to-own bandwagon, stating that, “this program will charge the equivalent of 100-plus percent annual interest, a move into a business that has drawn criticism for hurting low income consumers.  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 of return the product.  A typically deal would turn a $300 television into a $415 purchase”.  To further highlight the fact that despite the high cost associated with these purchases, the industry is lucrative, is that Sears claims that they are embarking on this as a result of consumer demand.

With all of this being said, there are plenty of other options out there.  For example, Amazon.com is almost always cheaper than buying retail.  Do not be impulsive—go bargain hunting and search online for sales.  If it is a TV that you are considering, think about getting Netflix on your laptop instead.  Plenty of TV shows are out there on the Internet for free as well.  The logic should be that if you don’t have the liquid cash to pay for the item at the moment, then it most likely is not a necessity that you need to overpay for in order to have it now.  Save enough to purchase the item at regular price when you have the money.  Refurbished items do not have anything wrong with them either, and are typically much cheaper than the same item brand new.  On that note, second hand items should not have a stigma associated with them either.  Craigslist, estate sales, consignment shops, and yard sales are great ways to acquire high-end items for a much less painful price.  Yard sales in California take place every single weekend as well, and remember, you can’t be picky if you can’t afford it in the first place.  For those of you who think that it is a good idea for you to just “try it out”, consider the fact that it is most likely something that you will end up buying anyway.  Money Talks News contends that 70% of rent-to-own customers end up buying the items they’ve taken home from rent-to-own stores.

Lastly, assure that you have read all of the fine print in the contract and know if there are any hidden fees or penalties associated with late payments, early returns, or even fees associated with paying off the item early.  Be sure that the item is in the right condition as well – if not, it may qualify the item for a discount.

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