August 11, 2013
Rent to own stores are a TERRIBLE way to have more “stuff.” Why? Alternatives?
Rent to own stores are a TERRIBLE way to have more “stuff.” Why? Alternatives?
Because if you are renting to own something, you obviously don’t have the cash to pay for it. Also, the majority of items people rent to own (appliances, electronics, furniture, etc.) are depreciating items. You should NEVER take on debt for depreciating items. Instead, you should start saving money until you have the cash to pay for the item(s) that you want.
The best way to explain it is with example figures. First of all, they price something in weekly increments and say you can have it paid in one year. That way, it doesn’t seem such a terrible thing. So, for instance, let’s say you buy a $2,500.00 big screen TV from them (and it’s never a bargain price…always the highest retail price you can find for that item, even though they may have purchased it for far less). Well, $2,500.00 sounds like a lot. A whole lot. But when they tell you “Only $80.00 a week for one year and it’s yours!”, then $80.00 doesn’t sound like a whole lot. In fact, it sounds do-able! But take a look at the math: $80.00 x 52 weeks = $4,160.00! That’s a 66% annual interest charge on the original $2,500.00 amount…YUCK! At that rate, there are a variety of alternatives because pretty much ANYTHING is better than that.
1. The best course of action is to LEARN TO DELAY GRATIFICATION. This is a cornerstone skill to acquire for any financial decision, actually, but particularly on items that will only depreciate in value. Mastering this skill (not an easy feat in today’s world of “bigger, better, faster” consumerism and alluring advertising) will be one of the most valuable and money-saving things you’ll ever accomplish. If you set aside that $80.00 a week for a mere 32 weeks, you have the cash to own that TV five months sooner than the rent to own plan. Yes, you have to wait 32 weeks for that TV but if you learn to delay gratification, that won’t be a big deal. Besides, having the cash in hand also gives you an edge because…
2. You should try to check non-chain stores first before turning to a national chain store. For one, supporting your local businesses is just a good thing to do and, two, they oftentimes have price negotiating power that the saleskid in the Big Name National Chain Store does not. Further, if you walk in with cash for the purchase, you have negotiating clout and can end up walking out of there with a couple hundred unexpected bucks in your pocket after the fact or, if you prefer, you can get more for the money you’d planned to spend. Wouldn’t it be cool to walk out of there with your new television AND a new surround sound system for it? All for what you’d planned to spend solely on the TV? I’ve done it. Cash in hand will almost always get you more for your money, in addition to no money being thrown out the window on interest.
3. If you simply must use a national retail store, see if they have a layaway plan. No, you don’t get to take the new TV with you when you leave the store, but you also get to pay it off in increments with no interest charges.
4. I personally dislike credit cards. The credit card companies’ well-calculated odds are always against you. In this case, however, even the highest credit card APR is better than 66%. I only list this because it’s a better alternative than rent to own but, in most cases, if a person can qualify for a credit card they don’t need to use the rent to own store anyway.
5. NEVER take a store line of credit. “90 days, same as cash!” sounds attractive and when you agree to it you will ALWAYS have the best of intentions. Everyone does. You think “Hey, if I pay it off within 90 days there’s no interest fees!” Unfortunately, you’ll lose your cash-on-purchase negotiating clout. Also, when 90 days arrives and you’ve had a financial pinch (say, a car repair emergency came up) it’s WAY TOO EASY to blow it off and say “Well, the minimum payment isn’t that bad…I’ll just pay it off that way”. Creditors plan on you doing exactly that. Nearly everyone does do it because life gets in the way and sabotages even the best intentions sometimes. Then the interest starts accruing on the 91st day and you end up in the same boat. No matter how reasonable their terms may seem, no matter if they say they’ll qualify you on the spot no matter your credit condition, STAY AWAY.
Katherine got us started with well grounded insights and L. Painter provided many wonderful details to fill out the explanation. Welcome to the discussion L. Painter! Clearly you “get it.” I have nothing more to add. Great job!