Rent-to-own furniture is a huge industry. Along with computers and appliances, it accounts for billions of dollars a year. But is it the right solution for you?
This is the debate when it comes to the ever-growing rent-to-own (RTO) industry. Rent-to-own stores offer individuals brand-new merchandise through weekly or monthly payments. The lure of these stores is the ability for customers to walk away with a new, expensive appliance for relatively low prices and no credit check.
Seem too good to be true? Depends on who you ask.
Several studies show mixed reviews from consumers who have purchased items from an RTO business. The type of feedback is often based on factors depending on individual consumer needs. Here’s a breakdown of the pros and cons of rent-to-own purchasing.
Rent-to-Own: How it Works
Rent-to-own provides consumers the option of owning certain items by agreeing to weekly or monthly payment plans.
These types of transactions provide immediate access to household items at an attractive price. And, unlike most other types of lenders, RTO businesses typically don’t require a credit check or down payment. The lease provides the option of purchasing the goods through continued payments, typically 12 to 24 months, or by paying early based on of the specified proportion of the remaining lease.
This model is different from other purchasing options like in-store credit or layaway. This is because in-store credit is a loan financed by a business that incurs interest. RTO is not technically a loan, but a payment plan.
With layaway, the customer makes weekly payments toward the actual cost of an item. This is kind of like an RTO, only the consumer is paying on the actual cost of the item for on average less than a month. And, the only payments required are toward the overall actual cost of the item. Meaning, you’re not locked into a payment contract with high-interest rates (up to 275 percent on average) paid out over a period of up to 36 months or higher.
Rent-to-Own: A Billion-Dollar Industry
The rent-to-own industry is exploding. A 2016 research article showed that more than 4 million Americans were RTO consumers, generating nearly $8.2 billion in revenue.
The Federal Trade Commission conducted an intensive research study where they interviewed rent-to-own customers about their experience with RTO stores.
Of the types of items rented, the study revealed 38 percent were home electronics products, 36 percent furniture, and 25 percent appliances. The most common of these included televisions, sofas and washers and dryers, which together accounted for over half of all rented merchandise.
A popular RTO business ran a special on a Dell system for $39.99 a week for 62 weeks. Although the computer in itself is not cheap, at $1,100, it seems small potatoes when compared to the $2,479 a consumer will pay if rented. The same franchise was offering a 50-inch Toshiba for $34.99 paid out for a total of 116 weeks. This is nearly 4 times the amount of the original asking price of $1,200 at a grand total of $4,000.
And this trend remains consistent across the board whether it’s household furniture or appliances.
A popular furniture rental business offers entire living room sets ranging from $73 to $146 total, on top of taxes and additional fees, with a 12-month lease. The room set, which includes basic items such as a sofa, chair, and table, would in total cost a consumer more than $2,000. A quick browse on the Ikea website and I calculated an average total price of around $700 for all three items.
Even appliances, such as a refrigerator which costs on average $700, will cost you about $2,730. That’s if you plan on renting the appliance for the average dealer cost of $30 for 91 weeks.
Long story short? Studies show on average a customer will end up spending an average of 60 percent higher than the original cost. Customers purchased 70 percent of the merchandise, making payments for about 14 months before purchase.
Even more interesting? Seventy-five percent of the rent-to-own customers said they were satisfied with their experience, while only 19 percent were dissatisfied. And, financial reasons only accounted for 24 percent of the returned merchandise.
So what makes an RTO business still appealing despite consumers subjecting themselves to such extravagant costs?
Rent-to-Own: Why it can Work
There are a variety of reasons why RTO transactions can actually benefit the customer.
Most of the time, the merchandise itself is of high-quality. This is appealing, especially for those whose budget would typically not allow for the more expensive items, or who have credit problems.
Renting to own may be favorable based on the specific needs of the individual consumer. This is especially true for those not planning on actually investing in the item long term. In fact, the FTC survey showed the majority of consumers returning an item (59 percent) was because the renters’ needs had changed.
For instance, RTO could be beneficial for a parent who may not want to invest in an expensive item, such as a musical instrument, to use for a few months. Or a college student, military family, or business executive who only plans to stay in a location for a set period of time.
Those who stage homes could increase their chances by making the homes look more livable.
Most businesses offer a lifetime of reinstatements. If you don’t want to continue paying for an item, the store will credit the money to future purchase. If you fall on hard times, you can pick back up where you left off when you’re financially ready.
For those starting out on their own with little to no furniture, there is the added benefit of getting fully-furnished new digs in a matter of 48 hours or less. This is especially helpful for those who have little money upfront. Also, rental centers often pick up and deliver furniture for you when you’re ready to move in. This saves you a headache and additional costs of moving.
More often than not, these businesses will report your rental history to the credit bureaus. This allows for you to build a positive credit history if you make on-time payments.
Of course, the majority of these pros are based on specific life circumstances. There are alternative ways to stay within your means without going the RTO route.
Rent-to-Own: Budget-Friendly Alternatives
Although more time-consuming, there are a plethora of cost-friendly alternatives that could prove much more beneficial in the long-run.
High-quality furniture is often available at thrift stores or weekend estate sales. Call around to used appliance and electronic stores to see if they carry the item. Or, my personal favorite, spend some time perusing classified ads. They can be a treasure trove of top-quality items practically given away for free by those who have recently upgraded, redecorated or are moving.
If you’re still interested in the RTO route, investigate the company. Read the terms and conditions, especially the fine print carefully and thoroughly. If there is a clause or phrase that does not make sense to you, ask the dealer to explain. If you can’t get a straight answer, reach out to an outside expert such as a consultant, attorney or organization.
Have you ever used an RTO to purchase merchandise? How was your experience? Do you have any additional feedback, tips or tricks to share? If so, we would love to hear from you in the comment section below!