5. Rent-To-Own Merchandise
The $6.8 billion rent-to-own industry offers TVs, computers, appliances, jewelry, and furniture for “low, easy payments” with no money down. But many of the three million people who shop in chain stores like Rent-A-Center end up buying over time-and paying exorbitant rates.
A 37-inch LG flat-screen TV that retails for $1,300 can be rented for about $36 a week. After 142 weeks, you own the TV but are out $5,100. That’s an interest rate of 142 percent. Rent-A-Center’s Gus Whitcomb says, “You have to add in delivery and in-home service to any comparison costs before you do an apples-to-apples comparison.”
The industry contends that it doesn’t really sell merchandise-it mainly rents it. This allows stores to avoid violating state usury laws-which regulate the highest rate that can be charged legally-despite true annual percentage rates (APR) of 75 percent to 350 percent, says Ed Mierzwinski of the U.S. Public Interest Research Groups. “They promote the dream of ownership to poor people who are grossly overcharged for what is often used or low-quality merchandise.”
People with bad credit or low incomes may feel they have no other options. That was certainly true of Traci Barker, 30, who rented furniture, TVs, and a used computer. At the time, the single mom from Sicklerville, New Jersey, earned $10 an hour as a customer-service representative. “It got to the point where I was making $150 a week in payments to Rent-A-Center,” says Barker, who had to return most of her rentals when she lost her job.
She joined a class action lawsuit against Rent-A-Center. After the New Jersey Supreme Court ruled that interest rates of 80 percent or more were in violation of state law, the rent-to-own giant settled the case for $109 million. Barker, who had spent $10,000, got a $6,000 refund.
The best advice: Spending $35 to rent a big-screen TV for a Super Bowl party might be a good deal. But over the long term, rent-to-own contracts are like subprime mortgages for washing machines and pullout sofas. If you miss a payment, the merchandise may be repossessed and you’ll lose the money you’ve paid.