Initially I looked for local privately owned rent-to-own centers in my area , but came up short. This is most likely because in my middle class suburban area, these places are not profitable and competition from bigger chains like Rent-A-Center, makes it hard to survive. In the end I decided to contact the local chain of Rent-A-Center which claimed to offer the best deals on rent-to-own merchandise in the area.
First, what is a typical rent-to-own plan and how does it work? According to investopedia.com, a rent-to-own plan is simply “An arrangement between a consumer and a seller that allows the consumer to rent furniture, appliances and other goods for a defined period of time.”(Investopedia.com) A typical plan would consist of paying a set amount either weekly or monthly, depending on various factors and ownership would be relinquished to the payer after a defined amount of payments. These types of transactions are seen as high risk due to many of the people who participate having a lack of good credit and most use it as an alternative to getting a loan.
The Rent-A-Center I contacted was a branch about 15 minutes away from me in, New Jersey.However, a quick Google search for the phone number lead to listings of over 30 locations within an hour drive of me, leading me to believe Rent-A-Center is the dominant rent-to-own center in my area. The company itself is publicly traded on the NASDAQ and according to Reuters, operates almost 3000 stores throughout the United States, Canada, Mexico and Puerto Rico, while also accounting for 35% of the rent-to-own market in the United States.(Reuters.com) The store itself offers everything from furniture and appliances to electronics and gaming systems. I talked to a woman named Stephanie and although she was helpful, she basically said I would need to either go onto the website or visit the store to apply for a plan. The few questions I did ask were if Rent-A-Center offered plans to students, if they did a credit check or if you even needed an income to enter into a plan. According to her they do rent to students, however whether or not they do a credit check or if you need an income is totally dependent on which plan you chose.
I then went to the website to check out some of the plans offered by Rent-A-Center and found out they offer three types of purchase plans, a flat out cash purchase, a 90 day interest free plan and finally a RAC flex plan, which offers a weekly payment option without a credit check. The 90 day interest plan was pretty straight forward if paid on time, but an asterisk at the bottom of the page indicated that if not paid on time you would be responsible for paying the monthly interest rate for all the months you received interest free. For the 90 day free interest plan it states that credit score would be checked upon application. If they actually do this who knows.
The RAC Flex plan seems to be their main product which boasts no credit checks, pay as you go, and a flat rate interest fee for everyone. This plan sounds great right, but upon further inspection the asterisks start to pile up. For example, there are service fees, installation fees, late payment fees, and exclusions for certain products. Worst of all they don’t even specify any of the fees unless you have the contract in front of you at the store. In order to sign up for this plan all that was needed was a verifiable income at minimum wage and four references who would be able to assist customer service if they had trouble contacting you if payments stopped. I wanted to see how much the costs of renting-to-own a standard item like a Playstation 4 would be so I examined the payment plan.
The price for the Playstation 4 weekly was 29.99 or 129.99 monthly, both including late fees if your payment was made past the deadline, within 2 months. If a payment was later than 2 months, information would be turned over to the authorities and either a repossession of the item would take place or a court order would be issued. The amount of payments needed before the Playstation 4 would be completely paid off would be 52, which with tax would amount to over 1600 dollars. Compared to newegg.com, which sells a Playstation 4 for about 400 dollars, the rent-to-own plan at Rent-A-Center would cost four times as much! Essentially you are looking at around a 400% annual percentage rate for renting from Rent-A-Center.
Although this plan seems ridiculous, Rent-A-Center does offer many programs available to the renter if payments become overwhelming. For example a customer can stop making payments at any time they want if they feel the program is not right for them free of charge, as well as freeze the payments and resume them at any time. However that being said, Rent-A-Center purposely keeps the real price of items relatively secret and prices everything on the site as weekly or monthly. I only was able to find out how many months the item would have to be paid before owning it by contacting the store itself. In my personal opinion I think Rent-A-Center does not want you to ever finish paying off the item because they make more money by having you stop making payments and returning the item.
Rent-to-own centers provide a service, but is this service in question a form of predatory lending? Each situation is different and it is hard to distinguish whether or not a particular situation constitutes being called predatory. I strongly believe that Rent-A-Center is taking advantage of the poor and credit-lacking as a business model, but the majority of items they sell are not necessities. In one way it could be considered a type of predatory lending because they seem to hide information about how much the item would eventually cost, but it also should be the consumer’s responsibility to ask. In conclusion I think most rent-to-own plans are probably extremely overpriced and a rip off, but I don’t think they predatory if the information about the purchase is readily available. Its a scam no doubt, but like I said most of the things they offer in the store are luxuries.
-Calaber24p