EasyHome Marketplace Insights

Part
01
of three
Part
01

Rent-to-Own Drawbacks

Four drawbacks to rent-to-own contracts for Canadian consumers are the fact that consumers generally overpay for items purchased via rent-to-own contracts, that products in rent-to-own stores are overpriced in general, that rent-to-own contracts include harsh contract terms, and that rent-to-own contracts generally include many hidden fees.

Overpaying

  • While monthly payments are low, Canadian consumers will end up paying, on average, three times the original cost of the furniture if purchased via a rent-to-own contract, due to high interest rates and long terms.
  • In some instances, consumers will pay up to five times the original cost of the item.
  • This is a drawback since the product can generally be obtained more affordably through other means, such as saving for the item, using a regular credit card, or using a buy now, pay later plan.

High Markups

  • Rent-to-own stores in general have higher markups on their products than regular retail stores. Even if purchased via a "90 or 120 days same-as-cash" plan, consumers purchasing from these stores will end up paying more than they may have elsewhere.

Harsh Terms

  • Rent-to-own contracts often include harsh terms. For example, the penalty for a single missed payment may be termination of the contract and collection of the item.
  • Even if the contract includes the ability to "reinstate" the agreement after a missed payment, consumers must pay a high fee to do so.
  • This is a drawback because consumers may lose both the item and all the equity (payments) they have in the item. Additionally, there is generally misunderstanding and confusion around this subject on the part of consumers, as it is not clearly explained when they sign the contract.

Additional Fees

  • Rent-to-own contracts include many additional fees, like reinstatement fees, delivery fees, service fees, purchase fees and return fees.
  • Many of these fees are not clearly explained to consumers at the time of signing the contract.

Research Strategy

In order to ensure the drawbacks were specific to Canadian consumers, the research team relied on Canadian specific sources, like those from the Canadian government or Canadian consumer groups.
Part
02
of three
Part
02

Rent-to-Own Benefits

According to the Association of Progressive Rental Organizations (APRO), rent-to-own allows consumers to purchase brand-new merchandise through periodic cash installments, typically on a weekly basis. This industry, valued at $8.5 billion across the United States, Mexico, and Canada, arose in the 1970s to give consumers access to new merchandise without incurring debt or having to meet strict credit requirements for the purchase of big-ticket household goods, including furniture and electronics. Exact numbers are unavailable for Canada, but the association notes that it serves approximately 9,200 stores in the U.S., Canada and Mexico, with the majority of these being U.S.-based. Additionally, the APRO states that it serves 4.8 million households across the three countries each year.

Benefits of Rent-To-Own

The Financial Consumer Agency of Canada outlines potential benefits of rent-to-own contracts in Canada.

  • Buy now, spread the payment over time to suit one's budget: Perhaps the consumer needs a big-ticket item like a refrigerator or a washer and dryer now, but they do not have the credit or the available cash now to purchase it, nor would they be able to pass a credit check to obtain financing from a store to obtain the needed item. Rent-to-own enables them to secure the item they need immediately without a large cash outlay and then structure the financing over time in a manner that suits them.
  • Consumers could immediately buy something that they might not be able to pay for at the time: As a corollary, individuals can get an item now that they can't pay for right now, whether it is because they can't afford to pay for it all at once or because the timing of their need to purchase the item is inopportune — for example, their washing machine suddenly dies, and they don't have the cash or credit available to buy a new one.
  • Individuals could obtain free repairs or even replacements on their item: During the term of their rent-to-own agreement, depending on the terms, the seller may be required to ensure that the individual's merchandise is fully functional at all times. "If [an] appliance breaks, most rent-to-own companies will repair it at no cost, or give the [customer] a loaner while she waits for it to be repaired," says one industry expert.
  • Consumers obtain needed or wanted items with a low or no credit score: As Forbes' Kristin Stoller notes in her piece examining the pros and cons of the rent-to-own industry, "Most rent-to-own businesses don’t require a credit check."
  • Making payments on time could assist in bolstering a consumer's credit score: Because this type of transaction is not a purchase, this is not always the case, but in some cases, at the end of an agreement when an item is officially purchased and a transaction is complete, a consumer is able to ask to have their purchase record submitted to the credit bureaus.

While purchasing via rent-to-own can be an ideal situation for many households, these arrangements may cost exponentially more in the long term, but studies show that many who take advantage of their purchasing power say that rent-to-own arrangements are worth it to them regardless.
Part
03
of three
Part
03

Rent-to-Own Motivations

The rent-to-own option is a popular choice for Canadian consumers who possess certain characteristics. These customers are motivated by the perceived financial benefits of rent-to-own, as well as the convenience of the purchase process. They are also drawn to the free or low cost maintenance and upgrade provisions that are offered as part of the contract.

Financial Motivators

Maintenance and Upgrade Options

  • Consumers hoping to escape the hassle of maintenance and ongoing repairs appreciate that most rent-to-home contracts offer a free repair service and a full warranty.
  • Rent-to-own companies frequently offer a loaner item when the leased product is malfunctioning. Consumers find the option of a replacement product to be a unique benefit.
  • In the case of technology purchases, consumers enjoy being able to access upgrades easily and routinely.
  • Canadian consumers are motivated by the availability of insurance, which is seamlessly added to the purchase contract. The insurance protects them if items are stolen or damaged and can also protect them if they become disabled or unemployed.

Convenience

Research Strategy

To conduct research for this brief, we consulted extensive reports produced by consumer protection and advocacy organizations in Canada. This enabled us to determine the characteristics of Canadian customers who are drawn to rent-to-own contracts and their motivations for purchasing products in this way. We also reviewed the advertising strategies employed by rent-to-own Canadian companies in order to assess which motivators are consistently used to draw in customers. Finally, we reviewed a thorough investigative report on rent-to-own companies conducted by a leading news organization in Canada.

Sources
Sources