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Considering a rent-to-own purchase? Consumer advocates say you should reconsider. "My advice in one word: don't," says Mark Oleson, director of the Iowa State University Financial Counseling Clinic. "The cost is extraordinary." While rent-to-own stores offer convenience, no credit check and no long-term commitment, consumer groups say the math is the main reason to just say no. Rent-to-own customers commonly pay two- to five-times retail, according to a survey by the U.S. Public Interest Research Group, a consumer advocacy organization. "Consumers should be looking at the total cost of purchasing rent-to-own, not just the low weekly or monthly payment," says James M. Lacko, economist for the Federal Trade Commission. Story continues below For a class demonstration last year, Oleson got an estimate on a new computer from a local rental store: $32.99 a week for two years. Total cost: $3,431. Then
he went to Staples and found a more powerful model
for $800. When Oleson
did the math, he figured that a customer could take
advantage of the 18 percent
annual percentage rate credit line that Staples was
offering, make the same
payments as the rent-to-own store required -- and have
the computer paid off
in seven months for $845.25 Total savings: $2,586.
So
why rent to own? "I can't think of a good reason to
do that,"
says Oleson. But
the industry is popular with consumers and produced
revenues of $5.2 billion
in 2001, according to a survey by the Association of
Progressive Rental Organizations,
a trade group that represents about half the rent-to-own industry. "People
don't go to a rent-to-own [store] for price," says
Richard
May, the organization's public affairs director. "They
go because there
are uncertainties in their lives." The
big appeal, May says, is that a rental contract allows
buyers to "keep
their options open." According
to a survey by the FTC, 59 percent of customers come
from homes with
an annual income of less than $25,000, while 73 percent
have a high school education
or less. Because
rent-to-own transactions are not treated as credit
-- technically consumers
don't own the item until they have made the last payment
-- the fees that they
pay over and above the cost of the merchandise aren't
regulated by usury laws.
If they were, consumer advocates argue, then consumers
would see that they were
financing their purchases at triple digit rates. "They
don't understand how deep in debt this puts them and
for how long,"
says Tom Collens, vice president of operations for
the Consumer Credit Counseling
Service. But
industry advocates counter that rental purchases shouldn't
be treated as
sales because only 25 percent to 30 percent of the
transactions result in a
sale. A survey by the FTC put the number at 70 percent. Presently,
no federal legislation governs rent-to-own transactions.
An industry-backed
bill currently under consideration (H.B. 1701) is controversial
because consumer
groups fear it would weaken rent-to-own regulations in some states. How
it works With
rent-to-own transactions, customers make weekly, biweekly
or monthly payments
for their merchandise. The interval is most often dictated
by their paycheck,
says May. While
companies don't check credit or ask for a deposit or
down payment, they
will ask for several personal references and check
employment, says May. They
will also check to see if a customer has ever skipped
out on a rent-to-own agreement
in the past. The skip rate is 1.5 percent, he says. If
you have your heart set on rent-to-own merchandise,
be sure to nail down
the fine print. Exactly how much are the payments?
Does that include tax? Are
there any add-on fees? Find
out exactly when payments are due, if there is a grace
period and what
the late fees are. Some companies will personally collect
late payments -- a
convenience or a hassle, depending on your point of
view. But often there is
a charge for such personalized service on top of the late fee. In
addition, find out if a late payment will void the
contract. If it does
and you want to reinstate your rent-to-own agreement
and avoid loosing the money
paid thus far, what's the charge? And if you decide
you don't want the item
any more, is there a return fee? Read
the contract to discern who is responsible if the merchandise
is broken,
lost or stolen. By law, the person who owns the object
-- in this case the store
-- would be responsible for it, says Margot F. Saunders,
the managing attorney
for the National Consumer Law Center, a nonprofit law
firm. But the rent-to-own
contracts she's seen shift the burden to the person renting the goods. Stores
often offer a damage waiver to protect the consumer
from liability for
a few dollars extra per payment. What
if the merchandise is a lemon -- the computer crashes,
the washing machine
floods or the VCR won't record? That, says May, is
the beauty of rent to own.
Call the store, and they will bring you a loaner while
they repair the original
merchandise. If
you expect new merchandise, get a promise in writing.
Such a request should
be included in the contract, says May, and the item
should be delivered in the
box with all the manuals and information. As
with any transaction, smart consumers read a contract
completely before
they sign. If what you're reading is different than
what you are being told,
remember the written word is what's binding. Either
have someone change the
contract or shop elsewhere. Options A
better bet for consumers on a budget might be to pay
down a credit card and
charge the merchandise. But
what if the item in question is a must-have, like a
refrigerator or a washing
machine? At that point, Oleson says, consumers might
be better served financially
to ask for a credit limit extension, or see if they
can qualify for an in-store
credit card with a department or discount store. Usually
a 26 percent APR credit
line is ultimately cheaper than purchasing through a rent-to-own store. And
then there's the old standby that no one wants to consider:
saving. Put
the rent-to-own payments in a piggy bank, wait a few months and pay cash. Dana
Dratch is a free-lance writer based in Atlanta. |