The debate pitting the concept of buying versus the concept of renting will never end. With a primary home, there may be a plethora of financial calculators and endless real estate analysts to help you make the decision. There are financial considerations as well as non-financial considerations, and pundits on either side who swear their way is the only way and will argue their position to anyone who will listen.
There’s a similar debate concerning cars. Buying a car provides the benefits of ownership, but leasing allows someone to reach for a vehicle perceived to be nicer for a more affordable monthly payment. Never mind that when the lease is up, you’re left with nothing but less money in the bank. I rent my home because I don’t plan to stay much longer, but I purchased a car — a new but well-priced car — because I planned to keep it until its useful life surrendered. If I had chosen a lease, I’d still be making payments, but I’d have a nicer car.
That’s the rationalization that people use when they take advantage of rent-to-buy offers. Stores like Rent-A-Center allow people to drive home something they might like or need, like a flat screen high-definition television or a refrigerator, when they might not be able to afford to purchase the item with one check. Most people turn to credit cards, and subject themselves to 15% to 30% interest. This addd thousands of dollars to the cost of these items over time. Either they are unaware of the reality of the added cost or they believe the extra money spent through interest is worth the convenience of having what they want or need today — without having to delay their gratification through saving in advance.
Credit cards aren’t available to everyone, though. Particularly during the credit crunch, when layaway plans came back into favor for a short period of time. Even now, a spotty credit history could keep even responsible people from finding a credit card with a high enough spending limit to make a major purchase. Renting to own is a fashionable alternative, but the costs can far exceed credit card interest.
According to Consumer Reports, Rent-A-Center is offering a television valued elsewhere at $1,890 for 104 weekly payments of $39.99 a week. The small weekly payment makes this offer very attractive. The allure of a small periodic payment makes any deal seem better — just ask late-night infomercial-based salesmen who sell their products for three easy payments of $19.95 — when the same products are sold in stores for one payment of $19.95. Just ask car salespeople who, depending on the customer, will try to talk in terms of monthly payments rather than sticker price. There is truth to this concept; it is the monthly cash flow that has the most effect on an individual’s budget, but it’s a weak argument for long-term financial stability.
The Rent-A-Center payments for the television add up to $4,195 over the two-year period, and that works out to be equivalent to an interest rate of 92%. That’s payday loan territory.
The company understands that its customers generally choose renting to own as a last resort and are perhaps not in a stable financial situation. Rent-A-Center settled with Washington State for allegedly using underhanded tactics to take advantage of its customers.
Is there ever an occasion when renting to own is a good idea?
Published or updated June 23, 2011.