Rent-A-Center More Like Ripoff Center

JLP over at AllFinancialMatters checked into renting furniture to own with Rent-A-Center. For a sofa and loveseat with a retail price of $1,048, a renter would pay $26.99 per week for 104 weeks, adding up to a whopping $2,806.96!

Although this is renting-to-own, it is still an extension of credit, similar to a contract for deed in the real estate world. In either case, you get something you haven’t paid for and, more importantly, do not have an ownership interest in. If you stop paying, Rent-A-Center gets your money paid so far as well as the furniture. The wisdom of this is, of course, dubious from the get-go.

In this case, it works out to a 122% APR. That kind of makes Rent-A-Center the payday lender of the furniture world. As JLP points out, you could sit on the floor instead and own that furniture outright in only 39 weeks. No savings account? Coffee cans buried in the backyard aren’t a bad idea. SAM GLOVER

(Photo: amyadoyzie)

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  1. Leiterfluid says:

    You know, I hate to state the obvious here, but Rent-to-Own places have always preyed on those without the cash up front, or the means to get financing from a reputable lender. This shouldn’t be a surprise to anyone.

  2. royal72 says:

    good lord! i always figured they were making good money with this scheme, but that’s insane.

  3. Rent a center sounds like a loanshark.

  4. evilrobot says:

    a close friend of mine worked at one of these locations as a first job out of college. the mindset of the customers was not “i’m paying $2000 for $1000 worth of merchandise”, but instead “i’m getting a $2000 sofa, at only $25 a week”.

    the financial beatdown seems to be forgotten by the immediate delivery of tvs, stereos, and sectional sofas.

  5. Hexum2600 says:

    I have said for a long time that the secret to an *easy* successful business is to find a way that

    1. Fulfills a need people feel they have. Not something they want, something they NEED.

    2. To find a way to add some nice frills on top. Someway to make it something better than what they expect to be able to get, at little extra cost.

    3. Over a pricing scheme which makes people repeatedly pay into it, without charging much at one time.

    Look at starbucks. A LOT of people drink coffee everyday, so its something they feel they are going to get anyway. Add the frills like flavors and whipped cream, etc etc, and you have made it something a cut above a 99cent cup from the gas station. Finally, because people do it every day, or most days, you bring in repeat business and maybe only charge 3-5 dollars a pop. People feel they can afford it, are treating themselves, and yet are paying a lot for what they are getting.

    Look at a bookstore. A LOT of people feel that books are something they “need” even if its just for “quality entertainment” (better than tv for instance) or self improvement or education. You can find cheaper books online, or at bargain stores, yet not THAT much cheaper… most people don’t draw a line between a 3 dollar used book and a 7 dollar paperback from Barnes and Nobles and say that the extra few dollars makes it not worth it. And finally, books only last so long, so they’ll be back to pick up the next in the series.

    Finally, look at “luxury” cars. People buy cars, they drive them around from place to place, and many people feel they are indispensable to their way of life. But what drives someone to pick up a new Lexus every couple of years instead of something used for a fraction of the price that they will keep until it dies. Its the frills. The bank has you making payments, so its the same type of payout from your pocket as if you were a repeat customer.

    Now, I’m not saying its wrong to buy coffee, or wrong to buy your books at a bookseller like Borders or Barnes and Nobles. All I’m saying is they offer a convenient product that people feel is worth the extra cost, and these companies make a decent (at least in their respective industries) margin on.

    The important part is to decide whether or not it is worth it to spend the extra. If you’re like me and read a book every couple of days, and you think about the cost its really not worth it to buy books from a retailer like B&N. Its almost not worth buying books except how many times I read them.

    I don’t think that anyone looks at a sofa and loveseat and says “hey, its totally worth an extra thousand dollars just to not have to shell out the full price at one time”. Instead, people are just looking at the immediate cost, the immediate satisfaction, and the fact that the repeated payouts don’t “hurt” them the same way a thousand dollar payout would.

    Its a large part of the difference between successful people and people who always seem to be a step behind… live within your means and only purchase comforts you can afford handily.

  6. KJones says:

    I had the misfortune of working for the Canadian ripoff company “RenTown”. All the conditions of “rental” were similar to what you said, but with some differences or additions:

    (1) Most products are rented for 24 months and the length of term was not negotiable. If a customer had paid eight months and returned the product to the store, the item would not be rented for 14 months – it would go back to 24 with the remaining “book value” spread over that time. This was done because most renters didn’t have the discipline to make two years of payments. Inevitably, about 90% of all products rented ended up back in the store.

    (2) The “book value” of the item was what the company said it was worth, and was the basis of the price. In reality, the “book value” was often an inflated price – the same product could be bought for cash in other stores for as little as 50% of the “book value”. Stereos which would sell for C$200-240 (US$160-190) would have an assigned “book value” of C$350 or more, despite the fact that the company bought them at wholesale prices, far below retail. The total price paid over 24 months (is someone was suckered into it) could be as much as FOUR times the retail price, not counting taxes.

    (3) People who failed to pay could and would be sued and have their credit ratings damaged. People with normally good credit ratings who rented things temporarily were sometimes left unable to get regular credit in the future, thus forcing them into “rent to own”, the only business that might offer payment plans. (Middleclass people would, for example, rent a big screen TV for the Superbowl.)

    (4) The poor were regular targets of the “rent to own” scam. Just as bingo parlours have their “bonus” and “special” days at the end of the month just after welfare cheques were issued, so do “rent to own” businesses. They send out copious numbers of flyers to the poorer parts of the city advertising “sales” on the 28/29/30/31st of months. And since many of the poor tend not to be as wise at managing money (one’s income is often linked to one’s education, after all) most were gullible enough to buy into the lie of “low weekly payments” which were anything but after the monthy payments were calculated.

    And that’s without discussing a bed we were expected to clean and rent again after an elderly woman died on it, her body not found until days later.

  7. jgodsey says:

    i never understood renting furniture.
    i never understood renting anything smaller than a car.
    furniture is something you get for free from relatives and sidewalks.

  8. North of 49 says:

    We were looking at getting a Wii from the newest agent on the block, Easyhome ( http://www.easyhome.ca ) . They have a store near here.

    Comparison shopping, a Wii is about 320 with taxes. Easyhome’s price? 12$/week. Then we looked into their costs.

    Length of contract: 24 months or 104 weeks.
    Initial costs: $20.00
    Initial payment: “first months payments as a lump sum” between 44-60$. Plus applicable taxes for the goods and services. And a two week wait because the store nearest us “just” opened up and was backlogged by two weeks or more.
    They require 6 references, two family and 4 not family.
    They also do a credit check.
    So, the initial outlay would be more than 100$. If you miss a payment, embarassment could ensue.

    Anyway, do the math with me – 104 weeks X 12$ = $1224. With the 14% GST/PST (I’m overestimating) is almost 1400$ for a 320$ unit.

    I sat there with my broken foot and listen to them swindle another customer. “Return guarantee fees (to be able to return it in case it is damaged somehow.” “Early Buy out (55% – but is that the principle or the entire loan?).” And other swindles.

    Then we found that there was a class action lawsuit against them in Ontario ( http://www.rtoonline.com/Content/Article/Jun05/JudgeApprov… ).

    If it wasn’t for the fact that Wiis are scarce around here, we wouldn’t have even enquired about renting one from them. We’re both glad we did. We’ve decided to save our money the long way in order to acquire a Wii.

  9. FLConsumer says:

    Why rent furniture when you can get FedEx Boxes? :)

  10. LatherRinseRepeat says:

    Furniture, appliances, cars, houses.. It doesn’t matter what the item is. A lot of people get suckered into the “low monthly payment” sales pitch and ignore the total end cost of the transaction.

    If you can’t afford to buy new furniture outright, then buy it used. Check Craigslist or similar sites. There are lots of decent furniture pieces available for cheap, or sometimes for free. And as Jgodsey mentioned, ask friends and relatives. I’m sure they all have furniture they want to get rid of.

  11. The “book value” of the item was what the company said it was worth

    Gameshow pricing!

    Anyway, do the math with me – 104 weeks X 12$ = $1224. With the 14% GST/PST (I’m overestimating) is almost 1400$ for a 320$ unit.

    It seems clear to me that all right-thinking people have an obligation to rent a house full of stuff from these outfits, then a van from U-Haul, put the former in the latter, and drive to South America.

  12. Pasketti says:

    Whenever I see a rent-to-own ad, I always think of that Something Awful Comedy Goldmine segment “Stories from Rent to Own”:

    http://www.somethingawful.com/d/comedy-goldmine/stories-fr

    Content may be NSFW, but it’s got that train wreck / schadenfreude quality – you just can’t stop reading.

  13. str1cken says:

    I went to a local Rent-A-Center the other day because I wanted to rent an XBOX360 to play Dead Rising. (I’m not buying a next-gen console yet.)

    I couldn’t believe my eyes when the $150 PS2 they had there was listed at a final end-of-payments price of over $300. The XBOX 360 week rental (which was all I wanted – a week) was pretty reasonable ($30) but the pricetag on the PS2 was enough to scare me out of that business for keeps.

  14. homerjay says:

    There was one of these places- I forget if its RAC- that would run ads saying something like “No payments until September 12th!! No payments until September 12th!!!” and the ad started running on like the 1st.

    They’re preying on the weak and impulsive but really, is that their problem? You don’t HAVE to buy from them!

  15. syrayes says:

    Another thing with rent to own place-Instead of paying it out every month, pay it out ASAP. There is a clause in most of the contracts that if paid early a customer only needs to pay half or 60% of the final value.

    Granted, it is the most expensive way to go. Howevever, if you are the working poor or can’t get credit-it may be the only way to go.

  16. Starfury says:

    If you don’t have a lot of $$ for furniture you can get used cheap at garage sales or the salvation army. If you have internet then Craigslist is a good place to find furniture. The only time I’d rent furniture is if I needed chairs/tables for a party of some sort.

  17. callmereggie says:

    The way to help poor people is not by taking away the few choices they have.

    Nobody NEEDS a Wii. This is not a heart and lung machine.

    There is a value to installment purchases, especially for those with less than stable credit. If not for RAC and others, these people would not even have the option of having these things.

    Now address the RISK of putting merchandise out on the street with minimal resale value and you have a cost higher than someone with a more stable economic situation would have.

    They even deliver. Macy’s charges $250 to deliver a $1000 couch. Call the FTC that is 25% of the purchase price.

    I do not chose to acquire home furnishings on installment plans. I also don’t pretend that removing the few options available to certain people will ‘save them from themselves.’

    There has always been a value placed on having what you want today, and paying for it tomorrow. There is also risk.

  18. shari says:

    Here’s a good reason to rent furniture – when I was in college I went California for the summer, working on an internship, after which I was moving back to Boston (and my furnished dorm). In California, I found an apartment with some friends, and we rented a furniture package, bedrooms and living room, for 3 months. The surcharge was worth it to us because we treated it like a *rental* – the same reason you rent a car – we only wanted it temporarily.

  19. RandomHookup says:

    I did rent furniture for a few months years ago. I was just out of college, in the Army, hundreds of miles from where I knew anyone, minimal credit available and jumping into a job that required tons of hours to start. I didn’t have time to spend finding a good place to buy furniture in a tiny Army town and have it delivered (time away from work). The apartment complex took care of the deal and it was worth it for 2-3 months until I could save up enough to buy my own stuff.

    But it is generally a rip-off.

  20. Pixel says:

    I don’t know about elsewhere, but here in CT the cost of rent-to-own shouldn’t be a surprise to anyone.
    The rent-to-own places are required to put both the cash price AND total rent-to-own price on each and every item. You can see at a glance that rent-to-own will cost you twice as much.
    If someone still wants to do rent-to-own that is their own lookout, but they can’t claim to be surprised or shocked when it ends up costing them a fortune.

    It probably wouldn’t work anymore, but an ex of mine talked about when she was in college. When they were throwing a party they’d send someone down to the local rent-to-own place with $20 and rent a couch and big TV. They’d get free delivery and setup. Then before the next payment was due they’d call them up and say they decided not to keep it and the place would pick it up for free as well.

  21. I have friends who do this and I really don’t understand why. They both have degrees in science and buy all their furniture on credit with a payment plan, or rent-to-own. They bought a house (a huge house), then furnished THE ENTIRE THING AT ONCE with furniture on payment plans.

    I’m mind-boggled as to why you wouldn’t a) use family/college hand-me-downs; b) furnish the house a little at a time, particularly when buying new; c) buy used; d) leave the THREE EXTRANEOUS BEDROOMS EMPTY. Even if you toss a mattress in one for a guest room, you hardly need a matching bedroom suite in each of three bedrooms you don’t use.

    I’m kind-of sympathetic to how people could do rent-to-own on some furniture — my couch looks like ASS and we have much higher financial priorities than a new couch, which is a pretty big lump sum, so $40/month for a new couch starts to look lovely — but THE ENTIRE HOUSE AT ONCE?

  22. bdgbill says:

    I have a hard time feeling sorry for people who get ripped off by these places.

    These are people who only care about appearing weatlhy rather than actually getting their finances straight.

    I understand that the furniture rental places make it crystal clear how much the person will pay before owning and that they will lose any money paid if they return the furniture.

    I’m sure that these places end up needing to repo most of the furniture rented, that the repo process is difficult and expensive given the neighborhoods where they operate and that a lot of the furniture repo’d is in poor condition and cannot be sold or rented again.

  23. shoegazer says:

    Look, sometimes it seems that anything with WEEKLY payments should automatically be treated with suspicion, but I agree with some of the posters here – the high finance charges are due to the nature of the asset being financed. You wouldn’t expect a table or sofa which was “rented” for 104 weeks to be pristine when it comes back. A lot of the time the residual value of the furniture is effectively 0, they can’t sell them on and incur costs by disposing of these in your local garbage dump.

    To those who complain that this is payday lending by any other name, the difference is that it’s primarily structured as a lease rental instead of a loan. What you are actually doing is similar to hire purchase agreements for company cars. Overpriced? fer sure. But for some people, “sitting on the floor” is not an option.

  24. North of 49 says:

    We wanted a Wii for our kids and have been trying to get one for several months now. I was just using it as a basis for the ludicrous overpricing they did.

    Can anyone figure out the APR they would have been forcing us to pay?

  25. raybury says:

    North of 49, that APR would be 0.00%… because no one is FORCING you to get a Wii.

    That said, being poor — or more specifically, not having money — in this country is incredibly expensive. I’ve been fortunate in that, while I’m no Trump and my credit is sub-par (due to overextension rather than lack of payment), most of what I’ve seen has been second-hand.

    1) Money transfers
    2) Payday loans
    3) Rent-to-own
    4) Prepaid utilities — electric, phone, gas, etc. as required

    But there’s also something to be said for lifestyle. How many times do you see someone on an expensive prepaid phone with expensive airtime charges (think Boost) gabbing the whole day away? How many times do you read a story about some poor person who was “gonna go down da store” to buy an overpriced Coke and some chips from a nearby bodega rather than buying groceries ahead of time? How many poor families seem to feed their kids every meal at McDonald’s rather than preparing healthy food at home?

  26. SpecialK says:

    Anyone know how I can start up a franchise?

  27. Floobtronics says:

    Why feel bad for these people? Want a $1000 couch? Scrape together $100, and hit yard sales. Get an old couch. Ok, now you’ve got something to sit on while you save the $1000. See? I just saved them $900.

    The problem? Our culture has taught people that it’s ok to be bad at math. This is one of the many results of the average person’s inability to comprehend simple mathematics. We’re not even talking about Calculus kids, we’re talking about elementary school level math.

  28. jefuchs says:

    This is not news. It’s been going on for years. I work with poor people, and often they are attracted to offers that require no money down (because they don’t have the cash). Plus, there’s the ever-present factor of social status, which even the poor crave. Everybody wants bling, but not everyone does the math.

    Here’s a good story outlining the high cost of peing poor. I’ve seen it all in my job. It’s amazing how much money the poor spend.

    http://www.alternet.org/story/39273/

  29. deadpool_xl says:

    I worked for easyhome in ontario, and once a product is repo’d it’s back out for rent no matter what the condition is, at the same rate. They claimed to not rent a product or products that equal more than 20% of a persons monthly income, but I’ve seen them load up a customer just to get the sale. The company targets low income people (reserves especialy) and charges a ridiculous amount for a product, ie: xbox 360 their cost: $498 wal-marts retail: $498.
    I’m glad they fired me because i couldn’t get people to pay

  30. cakes302 says:

    I would like tp add to the discussion of Rent-A-Center. i have been doing business with this company for some time now. I have rent to own several items from TV’s to a dryer, a laptop,funiture, and so on. I have spent thousands of dollars in their stores. I amke my payments every other week. A total of $98. I make the payments when I get paid. How ever, in between the times I make the payments, they call every day, leaving messages to call them. I had emailed their main office. Some one from Rent A Center called and said he would speak with the store employees and he would make a note in my file not to call every day. What good that was, I dont know. because here it is only a few says later, and they have called every day again. It’s has if the only thing they care about is the money and not you as a customer. How i wish I had that kind of money to just go out and out right pay for something or have the credit to buy the things we either need or want for our home. But my creidt is bad becasue of my ex-husband. Beware of them, they are nice to you when you make the payments, late or on time, but other wise they are a major pain in the butt in betweeen then. It doesnt seem to matter to them how many accounts you pay off. So what, they have enough customers that if you dont shop with them they probably wouldnt care any more.

  31. Anonymous says:

    I have used RAC in the past and it was a good experiance for me. When I had to give back the funiture due to a divorce they even gave me a credit to use in the store the next time I want to buy something. And if you pay it off with in the first 90 days you pay the retail price for the item with no interest. They didn’t call me at all while I was making the payments even though I had a late payment. They try to work with people.

  32. loriann says:

    While we all know that the reason anyone of us uses RAC is because we have bad credit and need or want something they sell. I invested in a new 5disc home theater system. I loved it and payed the high price of having bad credit. This being said I was about 1 month from paying of this system when it started having problems I took it in for repair and was told I would have to wait for a tech to look at it. When, I asked? Don’t know they replied! Okay, so they call me two weeks later saying I need this part replaced it’s been ordered. Then they call 1 week later, saying that part has been discontinued. My system was not even 1 1/2 YEARS OLD. Here was the deal given to me it could be replaced with a used system similar to mine. NO! Then I could have 1 month free on a new agreement. NO! I, said. Final offer, 3 months off a new agreement. Approx. $300. What do I have after spending $1500.00? NOTHING!!!!
    How fair is that? Never again! Rent to own, no rent to lose.

  33. battra92 says:

    I grew up poor for a time as a kid. My lad lost his job when I was in the fourth grade and then fell down stairs at our church (that had no insurance) and we went quite a bit into debt. It took my parents probably a good 8 years to climb out of that and they are far from rich, but they are for the first time in a long time, on fairly solid ground.

    That said, we never, EVER used Rent-To-Own. One poster mentioned status symbols and such. I don’t think my parents liked the fact that they had beaters for vehicles or weren’t embarrassed by the fact that we had used appliances which were gifts from our more affluent relatives or we bought items at Goodwill and tag sales.

    Believe me, I’ve been poor and while I hope to never be so bad off again in my life, I do feel that many people should just learn to change

    @jefuchs: Here’s a good story outlining the high cost of peing poor. I’ve seen it all in my job. It’s amazing how much money the poor spend.

    That was an interesting article, although it seems to more cover the poor in the cities. I’ve often wondered why the poor stay in the ghettos and such when they could get by much better in the country or small towns.

    As for the woman living at the Days Inn, why didn’t she and some friends stay together as roommates for a while to save.

    I mean, I’m not as pessimistic as some. This is not 18th century France.