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Stealing is a crime, right?

It all depends on your definition and the setting in which it takes place.

Some feel that the rent-to-own industry is simply legal theft of the financially burdened who have no other option. But what is rent-to-own? How does it work?

A different business model

The rent-to-own business model can be traced back to the 1930s in the U.K. The idea became popular in the U.S. in the 1950s. Here is how it works:

An individual or family that has financial difficulty – low income, bad credit – wants an appliance, furniture, television, computer, smartphone, etc. But the cost is prohibitive, and buying on credit isn’t an option. So rent-to-own businesses offer a third option: you go to the store, sign a contract to pay for the item on a weekly or monthly basis, and take it home. No credit is necessary, because you don’t actually own the item until you have paid it off in full. The business offers service on the product during the term of the contract. And if at some point you decide that you don’t want it, you simply return it to the store and stop paying for it. Easy, right?

The real cost

The truth is, rent-to-own ends up costing the unwary consumer a lot more money. Why? Hidden fees and interest. That’s right, when you add up the total cost of the item, you could be forking over up to 300% more than the actual retail cost! Fees can include required insurance, delivery fees, restocking fees upon return and late-payment fees. Here are some examples:

  • A large national rent-to-own chain offers a 37-inch television for 104 weekly payments of $31.99. The total price is $3,326.96. You can buy the same model at a big box store for $850.
  • A 23 Cu. Ft. refrigerator. Rent-to-own price: $2399.76. Retail price: $699.
  • XBox 360 Halo: Rent-to-own price: $839.88. Retail price: $399.

Legal theft? You decide.

Rent-to-own businesses often don’t disclose interest rates, and most of the time prices are not marked. Unwary consumers with restricted buying options are seduced by the low price, but end up paying through the nose. Many don’t ever pay the item off and just end up returning it.

How can they do that?

Because of the way the business model is structured, this type of transaction is considered, by law, a lease or rental agreement. In other words, it’s not a loan or credit transaction. So in most states, rent-to-own businesses are exempt from interest rate ceilings set by federal and state authorities. Yes, they can do that.

If you’ve fallen on hard times financially, it could be tempting to get the latest television, video game, or appliance at a rent-to-own store. That may seem like the only option. But if you run the numbers, you’ll realize that you’re being taken for a very expensive ride. Alternative options could be thrift stores, yard sales, or moving and estate sales. Or just save until you can buy it outright. You’ll spend a lot less in the long run.