The Easy Money Myth: Rent-to-Own Companies

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We live in a culture that tells us we deserve things.  We deserve to go on vacation because we work hard.  We deserve to eat dessert because we had a salad for lunch.  We deserve to live in a really nice house and drive a really nice car because we put in a lot of hours at the office.  This mindset is what gives us the idea that if we want something we should just go get it.  This is also the mindset that allows rent-to-own and title loan places to thrive.  This mindset is a load of crap.  There, I said it.  The mindset of I deserve is a total load of crap fed to us from thousands of different angles and promulgated (yeah, yeah, I know I just used a college word) by every TV commercial and radio ad you’ll find anywhere.  So what’s the truth?  What do we REALLY deserve?  That’s the topic for another post.  Today, however, I’m going to discuss the dangers of rent-to-own and share a story that has captured my heart for months now and motivated me to help people get (and stay) out of debt.

There are thousands of them, located in virtually every city and town in our country – Rent-to-own stores.  What’s in there?  Just about anything you need to furnish a home – you can find dining room suites, bedroom suites, couches, chairs, TVs, computers, game consoles, desks, washers, dryers, refrigerators, etc.  I could keep going, but I think you get the idea.  If you’ve never been in one of these stores, it looks a lot like a regular furniture store.  HOWEVER, there is one major difference. They don’t want you to buy anything.  Instead, everything is priced for you to rent.  Most prices are listed at how much it costs to have the item for a week.  Now that you have a good picture of what these places look like, let’s get down to the business of figuring out why they are a BAD financial plan.  Let me share a story.

I have a good friend who went to a local rent-to-own outfit and needed a bed.  He got a simple bed (mattress/box springs/frame) and was all set.  The cost – $13.99 per week.  Doesn’t sound too bad, does it?  After a year of payments, the bed would be paid for and all would be well.  It turns out there was a small financial issue in his house that kept him from being able to make a payment and a couple of nice gentlemen showed up and took his bed.  They literally repossessed his bed.  As he’s recounting this story to me, he reminded me of Proverbs 22:26-27: “Do not be a man who strikes hands in pledge or puts up security for debts; if you lack the means to pay, your very bed will be snatched from under you.”  Seriously?!  There couldn’t be a better sermon that that for avoiding debt!

Beyond the obvious concern of having the item(s) repossessed because you miss a payment or two, which can happen with any secured debt, let’s break down some of the math.  For kicks, I made a phone call to one of the local rent-to-own places and ask them what a decent queen-sized bed would cost me.  Since I told them I wanted to purchase it, he gave me three prices:

  1. $59.99 per month for 12 months.  Total cost = $719.88
  2. 120 days (4 months), same as cash on their on-sale model.  Total cost = $539.99
  3. CASH (I hand over real money, then and there) for the bed. Total cost = $431.99

These are the prices for the SAME BED!  While I didn’t question him on it, what he openly was telling me (without telling me) was that I could buy the bed for 40% less if I had cash vs. if I paid for it over the course of a year.  Are you serious!?  That’s the same as paying 40% interest, isn’t it?

By now I was having fun, so I had to see if I was getting a decent deal on a bed from this place with their cash price. I shopped around a little and found that for the same bed at a regular furniture store, I could buy it for $349.99.  I could probably get it for a bit less if I walked in and flashed a few $100 bills.  My point is this – we live in a culture that says we deserve something and thus we go get it right then, never considering the real cost.

Are rent-to-own places evil?  NO!  They have their place.  When I was in college, our dorm would go together and rent a big screen TV for all the major playoff events (World Series, Super Bowl, etc.).  This was a perfect use of those places, and one where we weren’t getting ripped off.  We rented the TV, paying a fair RENTAL rate and gave it back when done.  Simple.  But should you ever BUY something at one of those places?  My thought is NO.

Since I’ve never personally done rent-to-own, I’d love to hear comments from anyone who has.  How was it?  A nightmare?  A good experience?  Share your thoughts in the comments section below.

Disclosure: Some posts include links to sponsors or affiliates, which give me a small percentage of the sale. You are not obligated to use these links when you make a purchase, but when you do so it helps to support this site, so thank you!

About Barry

Barry is the husband half of the Stacy Makes Cents team, responsible for all the marketing, website development, sanity management and taste testing. Barry writes about personal finance issues, helping people get out of debt, live on a budget and make the most of every cent that comes into their hands. He is the author of From Debtor to Better: The Details of Debt and How to Get Out! and writes periodically on his own site, Debtor to Better.

  • Heather

    My husband is store manager of a Rent to Own. You are exactly right about the breakdown of costs for renting. If you RENT you will pay more (probably double) in the long run for your item. Thats the business, that’s how they make money. In this day, whether it be people have bad credit or don’t have the money up front for a big purchase rent to own seems their only way to have these items.

    Its their choice and they are given paperwork up front with all the fees, breakdown of the cost and a 90 day same as cash price. If you are able to pay it off in 90 days, that would be the best way but not everyone can do that.

    As far as repossession, its just like anything else (car for example) if you don’t pay they will come get it. However, my husband and his employees try to work with customers as much as they possibly can. There are just some people that you can’t work with and won’t pay. I have seen and heard it all in the last 6 years of him working there. There are people that rent big stereos, big screen tvs and bunk beds for their children, they get behind on payments and only have just “enough” so they pay for the TV and Stereo. Call the store and tell them to come get the beds-their children’s beds! SMH. Some of the things are very sad.

    I don’t think Rent to Own is a bad thing, its very helpful to alot of people to be able to have nice things that they couldn’t afford otherwise. Sometimes you just have to pay the price for that.

    • Barry

      Heather, you are absolutely right that it is a choice of deciding what’s important to you and your family when you spend your money. Some people will choose a big-screen TV over their kids every day, and that is sad beyond description. As I said in my post, I don’t believe RTO companies are evil. For the purpose of short-term RENTAL I think they are a viable choice. Beyond that, the math tells me they are a terrible idea financially. Consider the “needs” that you would RTO. The only thing that comes to mind is POTENTIALLY a bed, which is the biggest reason I used it as an example. Everything else in the store is an item that could be saved up for and purchased later. Yes, you could pay DOUBLE via payments and have the item now via RTO or you could struggle for a few months and buy it at a much better price (or even find one used). If money is tight, every penny has to count. If you’re well off financially, why not just go buy your desired item anyway?

  • Deborah

    I just had this same issue. We needed extra apace because we have a very small house. We went to a place to see about putting a building on our property. One place offered rent to own. So my husband did it. When I got the paper work I saw that is was A LOT more than I expected. So I went down there and talked to the lady. She said there was a small fee added to the cost of the building. I asked if I pay it off before the time aloted is there a penalty, she said no. So We will be paying this off by December…the cost of the building was 1,860.00…the additional fee made the final cost…3,690.00….oh no….it will be paid off by December
    Deborah

    • Stacy

      WOW! That is a huge difference! So proud of you guys for paying it off early. :-)

  • http://quickeasycheaphealthy.com Anne @ Quick and Easy Cheap and Healthy

    I honestly didn’t even know such places existed!

    • Stacy

      :-) It’s best to not know.

  • sherrie

    i have a friend who had a rent to own couch. they traded it in and got a dif one to fit better in their apt. i don’t know about you, but “sharing” a couch w/whomever rented it before me is pretty dang gross! i like to think i’m a pretty clean person, but i doubt everyone is. so why pay 3x or more for stuff that has been passed around the block?

    • Stacy

      Well, I am a buyer of used furniture…but I’m sorta picky about it. Like you said though, why would you want to pay MORE for something that’s already used? You should be paying less for something used.

  • Cristin

    My only experience with Rent to Own places is to go in and buy the returned furniture. They have great prices on gently used items in the back of the store. I got an oak kitchen table and 4 chairs, a dresser and nightstand, and a bookshelf for about $200.00.

    • Stacy

      That is GENIUS!!!!

  • http://livinbetter.blogspot.com/ Karina

    I’ve never done it myself. I had a friend of mine who did one for a sofa. She was very proud of herself for getting it. She was paying $25.00/week ($100/month) and it would be all hers in 12 months. She’d been sitting on the floor for quite a while before this and was so proud of herself for “growing up” as she put it. All I could think was if she’d sat on the floor for the next year (maybe spring for a really nice floor cushion?) and saved for a year she’d have enough cash to buy one outright and have money left over to buy her next piece of furniture.
    I think our generation is taught no only do you deserve it, but you deserve it NOW.

    • Stacy

      It’s a Microwave Generation for sure.

  • Rebecca

    My husband loves rent-to-own. He thinks I want a new computer for my birthday. Because the one he bought several years ago (from a rent-to-own) has been having problems. I would love to be debt-free for my birthday but he thinks I want things. What person doesn’t but I want to get rid of things before adding any more. What advice do you have for couples that one is a spender and the other is trying to save and get out of debt?

    • Barry

      Hey Rebecca,

      This is a TOUGH situation because it is not a money issue – it is a marriage issue. Your husband assumes gifting you with something he feels you want is more important than being debt free. You assume freedom from debt is more important than having a nice thing for now. My advice is this: if you can’t afford it, don’t buy it. However, it is more important that you agree as husband and wife on all your financial decisions. If they’re wrong, you did it together. You can’t point fingers at one another if you made decisions together. This is more important than being right or wrong with your financial choices. I meet people all the time who are on the verge of divorce because somebody has to be “right”. Then I meet couples who are on the verge of bankruptcy but are deeply committed and in love with one another and are simply making bad choices TOGETHER. Which can I more easily help? The second one…ALWAYS. Work together, agree, and then act on whatever you agree on. Then if you need guidance TOGETHER, I’m happy to help! One last thought, if you haven’t already, sign up for Stacy’s daily email and get a free copy of my booklet on budgeting. It is short, to-the-point, and will help you get started on communicating about money. If you need more, my full-length book, “From Debtor to Better”, may be worth reading. You can get that from my website, debtortobetter.com.

  • Gwenda

    I had an uncle who did that when he moved away from his family (very long story) and rented his own place. Just about everything came from the rent-to-own. When he left (another long story), my mother had to sell them – she managed to get just enough to pay some off, but some had to go via voluntary repossession. Unfortunately, she got stuck (co-sign) on the bed (HP, not rent to own) and she had to negiotiate terms to pay it off. What a nightmare!

    • Stacy

      :-( So sorry your Mama had to deal with all of that.

  • Erin

    Uh, where’s the fun of sleeping on the floor as newlyweds? Honestly, when we got married we lived for awhile with a cooler and an aluminum pan. We ate a lot of corndogs. We eat healthier now. Nineteen years later, the ship still has not come in. Couches are falling apart(5 kids!) and so thinking-slipcovers! Researching that option. Honestly these people who deserve everything NOW and the Best, do they not see people in 3rd World Countries? Do they deserve what they got? We are blessed!!!! Now to be stewards of what we were blessed with! Stacey have you got any posts on slipcovers? I don’t want them to look like I threw an old blanket on them.

    • Stacy

      It’s an adventure to “do without” sometimes. :-) It helps you be more creative with your circumstances.
      And no, no articles on slip covers. I think they’re super-duper cute…but Barry does not like them. Bummer.

  • http://youngwifesguide.com/ Jami Leigh

    Wow that’s crazy! I have never heard of renting a bed before, wow!

    • Stacy

      When you think about it, it seems a little silly. :-)

  • Carolyn

    Whenever those commercials come on, I try to read the fine print that they flash really quickly down at the bottom of the screen. I always knew those places were no good in terms of renting your furniture, but when you actually do the math, it’s horrible! Sadly, there are a lot of people that don’t look at the big picture and only see what they can afford right that minute.

    • Stacy

      “The fine print.” Funny how they always “flash” that part. :-)

  • http://www.heathersblog-o-rama.blogspot.com Heather :) :) :)

    I’ve never been to a rent-to-own place and will never do that. I’d rather just save that same money each week, pay cash on the barrel and own the item outright from the very beginning ;) :) Love and hugs from the ocean shores of California, Heather :)

    • Stacy

      Cash on the barrel is the way we operate. :-)

  • http://www.StrikingStone.com Lizard

    After my college graduation – I headed out west – to a new job and new life.
    I had two suitcases and that was it.
    I.had.enough.money.for.a.sleeping.bag.on.the.floor.and.that.was.fine. When I saved up a bit more – I bought a pillow and a ‘feather bed’ and put my sleeping bag on top – yup at that point – I was livin’ large!
    20 years later, I know where I came from and better yet – I know where I am going =)
    I had a friend that used ‘rent-to-own’ her living room furniture and the sofa was like sitting on some milk crates with a bit of foam on top – and the fabric pattern they use (oh!) it must have been to cover up the stains! – EW!

    • Stacy

      Way to go! :-) The feeling of paying something after saving up for it just can’t be beat. :-)

  • Vikki

    I don’t understand the need to have everything new right from the start and live at the same level as their parents. I’ll bet my bottom dollar that their parents didn’t start out with furnishings like they have now. The first 5 years of our marriage our house was furnished with if-you-don’t-want-it-I’m-throwing-it-out furniture, including our bed frame and mattress. We finally were able to purchase our first living room set, in cash, and were so excited with it. Now we have a nicely furnished home, but it took years to get there.

    Oh, we did rent to own our first frig, but that was because we moved into an apartment and didn’t have one and the rental amount on the frig was the same amount whether we simply rented it for a year or rented to own for a year. Plus the total we paid was market for a used frig, so no rip-off there.

    • Barry

      I like the challenge of waiting to buy things…it teaches discipline. :-)

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