Originally published in ConsumerAffairs.com
One of the most common, and costly, financial mistakes people make is this: when buying something on an installment plan (credit card or dealer financing, doesn’t matter), they only look at the size of their weekly or monthly payment, rather than calculate the total cost.
And it’s no exaggeration to say that without consumers making this mistake, so-called “rent to own” businesses could not exist. Seriously: if you buy furniture, appliances or electronics from the likes of Aaron’s or Rent-a-Center, even in the best-case scenario you’ll pay at least twice the standard retail price. The entire rent-to-own business model depends on its customers paying far more than anything they buy is worth.
Tonya A. from Illinois recently discovered this the hard way, when she wrote us about leasing items from Aaron’s: “We were renting a washer/dryer set, a 40″ TV and a bedroom set. However, due to losing my job, we had to give back the washer/dryer set and the TV. Even with giving this stuff back, our payments continue to be high. We have been paying on this account for quite some time now. The last time my husband was in their store, he asked them how many payments we had left. He was told 6 or 7 payments left.”
Out of curiosity, we tried checking the Aaron’s website to see how much it costs to lease/buy a 40” TV from them. But we couldn’t get any price quotes unless we filled out a registration form giving them our personal information, which we have no intention of doing.
However, Aaron’s competitor Rent-A-Center offers far more price transparency; you can get online quotes without registration. As of Nov. 5, Rent-a-Center advertised a special on an LG 47” 1080p smart TV: you can get one for $19.99 per week, and own it in “24 months or less” if you make “104 worry-free payments, total price: $2,078.96.” Rent-a-Center also offers a cheaper payment option: pay within 90 days and you get a “same as cash price” of $1,372.11.
We searched online for that make and model of television, and one of the first websites that came up is Kohl’s (which is not remotely the cheapest store we could find): on Nov. 5, Kohl’s sold that exact same TV for a “regular” price of $979.99, on sale for $729.99 — less than half as much as renting.
Meanwhile, the browsing function on Pricewatch.com found brick-and-mortar electronics stores selling it for as little as $599.99.
So: if you want that particular TV, you can pay $600 if you shop around for a local store that carries it, you can be more extravagant and buy it from Kohl’s for $730—or you can make “104 worry-free payments” at Rent-a-Center and shell out almost $2,100 by the time you finish paying for the television.
The only “advantage” rent-to-own places offer over regular retail—and a dubious advantage, at that—is immediacy: if you want a particular TV but don’t have the money for it right now, most rent-to-own places will let you take one home today. In exchange for this immediacy, though, you ultimately pay hundreds or even thousands of dollars more than that TV is actually worth.
Even worse: should your household fall upon hard financial times—as Tonya and her husband did, when she lost her old job and had to take a new one at a much lower salary—you’re still out those hundreds or thousands of dollars, plus your items get repossessed. Then you suffer the worst of both worlds: Tonya and her husband have likely paid Aaron’s far more than their appliances actually cost, in exchange for which they now have no appliances at all.
The same day we heard from Tonya, we also read an unhappy story from Corinne B. in Pennsylvania. She too faced recent financial setbacks, is having problems paying her current Rent-a-Center bills, and was dismayed to discover that RAC’s repo staff won’t cut her any slack, even though “I have been a longtime customer of RAC, and have bought out at least 7 items from them.”
Let’s assume a worst-case scenario wherein all seven of Corinne’s Rent-A-Center buyouts had the same $1,500 markup as that LG smart TV we told you about before. If so, that’s $10,500 she paid, over and above the actual value of the appliances themselves. Conversely, if she could travel back in time and convince her slightly younger self to stay out of Rent-a-Center, save those weekly payments and hold off on the TV and other stuff until she could afford to buy them outright, today Corinne would have all those items and an extra $10,000, too.
And if time-traveling Tonya persuaded her younger self to put off buying a TV and washer/dryer until they could afford a better deal than Aaron’s, today she and her husband would still have their appliances plus however many thousands of dollars they’ve paid in Aaron’s rental fees.
We’re not trying to demonize the rent-to-own businesses, here. It’s not even pure greed that motivates them to place such ridiculously high markups on their goods; some of that markup covers the genuine financial risk they take in giving high-ticket items to people who might not pay them back, plus the cost of hiring repo staff when that happens.
But as consumer journalists, our concern is for the well-being of consumers, not rental companies. And we’re not just consumer journalists; we’re also consumers, and nowhere near rich enough to afford an extra thousand-dollar markup every time we buy furniture or an appliance. That’s why, as one cash-strapped consumer to another, we urge you: stay away from the rent-to-own stores. Your future self will be glad you did.