Advantages and Disadvantages of Rent to Own
Posted by admin in Credit
Saw this ABC article "Bad Credit? Why You Shouldn't 'Rent to Own" today. It can sort of be summed up with this passage:
I once priced a 25-inch television at a rental store and a regular retailer. The rental store wanted $86.25 a month for twelve months. That's a total of $1,035. The cash price for the same TV at the regular retailer was just $500. Plus, when you rent to own, it's possible that the TV is several years old and has been rented to countless other people before you.
The article goes on to say that even a credit card would charge you less than a rent-to-own place, and that really you should just go without whatever it is you're renting until you can pay for it outright.
There is nothing wrong with any of this advice (except for the fact that your credit card will let you pay for that rented TV for an eternity where at least the rental place eventually makes you pay it off or give it back).
What I wonder about is who that article is intended for. Does anybody really think that rent-to-own is a heckuva deal? Or do people that rent furniture, TVs, etc. do it because they need/want the thing and can't/won't wait until they have enough money for it, even if it will cost more in the long run?
I agree about the rent-to-own downside, but any time you use any form of loan or credit to make a purchase you are doing a value calculation in your head – is it worth it to pay X percent interest to get this thing (or get my hands on a sum of money) now versus waiting?
Most of us will never buy a house outright. We take out a mortgage and decide it's worth it to pay a ton of interest over the life of the loan in order to own that home. (Especially with the associated mortgage interest tax break, although that's usually partially eaten by property taxes.)
Most of us will never buy a new car outright (although many more do than could afford to pay cash for a house). But we get a car loan because we can't/won't wait until we have enough money to buy it outright.
Some of us will buy a bedroom set outright, some of us will use credit.
Most of us will buy the Wii outright, but many will use credit and not pay that Wii off for a while.
How we use credit is a choice for everyone. So, even though I personally would never rent-to-own my washing machine, I have a hard time telling someone else they shouldn't.
But it's true that we should all think long and hard about what we're buying on credit, because if someone's offering you financing, they're not doing it out of love but instead out of a desire for your precious dollars.
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Wait, wait, wait. On a personal finance weblog you’re taking the opinion that if you REALLY WANT something it’s no big deal to pay 100% APR on it?
Give me a break.
People need to learn a little restraint.
I’m not saying it’s no big deal or that it’s smart. I’m saying that every time you buy something on credit you are making a value decision in your head — do I want/need this thing bad enough to pay this level of interest to own it? Some people will say a 100% APR to rent a TV is OK by them. I can disagree with it financially, but if it doesn’t break their bank, can I really judge them for making that decision? Every one of us has made buying decisions that “objectively” were wrong but that made us happy at the time.
For example, rent-to-own isn’t objectively smart, but if I’ve just gotten a higher paying job after a year of living hand-to-mouth and I decide to “celebrate” by doing a rent-to-own deal to get that TV today even though I know I’ll be paying a bit more for it when all is said and done, am I automatically “wrong” to do so?
I place these rent to own stores in the same bucket as the payday loan shops that are popular in lower income areas – they should be avoided at all costs! If someone can not afford to buy the furniture (or other goods), they should consider alternate sources such as ebay/craigslist.