How Bad of a Deal Is Rent To Own?

rent to ownI’ve always known that the rent to own stores are a complete ripoff and charge high interest rates.  Because of this when I receive ads in the paper from them, they go straight in the trash without a second glance.  I was just about to toss this weeks ad when something caught my eye;  They had an “everyday low price” marked on items that appeared to be over twice what you would pay anywhere else. This must be a trick to get around usury laws which restrict the interest rates they can charge.



500GB Playstation 4:

  • “Everyday Low Price”: $989.99
  • Monthly For 12 months:$109.99*
  • Additonal ASP fee per month: $10.99
  • Total Cost of ownership: $1,451.76.
  • Cost of Lease Service: $461.77

The True cost of the lease service in all actuality should be the difference in total cost of ownership minus the MSRP of the original product.  In the case of a 500GB PS4, that price is $399.99. The true cost of buying a PS4 through this rent to own establishment is $1,051.77.

Using these numbers the true interest rate over a 12 month time period works out to 345%.

Okay so what about something more useful?  I think we can all agree that a Playstation 4 is not a necessity.  I have heard arguments that it might make sense for people to buy a washer and dryer through a place like this because in the long run it will save money over using a laundromat.

The least expensive washer and dryer in the ad was:

Amana High Capacity Washer and Dryer Pair:

  • “Everyday Low Price”: $1,198.99
  • Monthly for 24 months: $79.99
  • Additonal ASP Fee: $7.99
  • Total Cost of Ownership: $2,111.52
  • Cost of Lease Service: $912.53

At least with the washer and dryer the “Everyday Low Price is close to the MSRP, however unlike Playstation 4’s, Washer and Dryers are routinely sold at a discount by retailers.  It is not uncommon to be able to get 40-50% off retail at stores like Lowe’s and Home Depot.  Even with a smaller mark up on their “Everyday Low Price”, you still end up paying twice what you would at a traditional retailer.

Alternatives to Rent To Own:

Rather than forking over such a high amount of money for necessities, look to other options.  Craigslist and Facebook yard sale pages are great sources for used functioning appliances.  I see washers and dryers for $100 each all the time.  If you don’t have a way to transport an appliance, many sellers will deliver in town for a small extra fee.

Resale shops like Habitat For Humanity ReStore and Humpy’s used appliances in Benton Harbor, MI are other great sources of used appliances that in the long run cost less than rent to own. If you have a Sears outlet store in your area you can save a bunch of money on a refurbished appliance.


Predatory in Nature:

In Benton Harbor, MI a town with a median income of $17,776, substantially below the national average, and a total population of 10,000, there are three rent to own companies. Aarons, Rent a center, and Premier.  Yes, rent to own companies offer a solution to people with no credit or bad credit, but the solution isn’t helpful.  They are selling overpriced items to people at an extremely high mark up.  Someone with horrible credit has no business buying a $1,000 gaming system or a $2,000 washer an dryer pair.

The business model these companies have set up put people in the situation of paying for an item quite a bit more than what it is worth, and then facing repossession of those items.  The rent to own company can then sell the same item multiple times.  It’s a great racket for them, but for the most part it is far from helpful to its customers.

Have you ever used a rent to own company? What was your experience like?

John C. started Action Economics in 2013 as a way to gain more knowledge on personal financial planning and to share that knowledge with others. Action Economics focuses on paying off the house, reducing taxes, and building wealth. John is the author of the book For My Children's Children: A Practical Guide For Building Generational Wealth.

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