EasyHome Marketplace Insights

Part
01
of three
Part
01

Rent-to-Own Motivations

Five motivations for consumers to obtain rent-to-own products are the immediate access, the ability to avoid long-term commitments, the desire to purchase these items that may otherwise be unattainable, to fulfill a short-term need, and the appeal of additional services offered with these types of transactions.

Immediate Access

  • The biggest appeal of rent-to-own transactions is that they provide immediate access to a product.
  • Many times, for the lower-income consumers that makeup the majority of rent-to-own customers, obtaining these expensive items immediately is unattainable via other methods.

No Long-Term Commitment

  • Rent-to-own purchases offer the ability to avoid long-term commitments.
  • The ability to avoid long-term commitments is a motivating factor for low-income families because their income is not steady and therefore, by avoiding long-term commitment, they can avoid defaulting or being unable to make their payments. With rent-to-own products, if their income changes, they can simply return the product.

Desire to Purchase

  • Most consumers (70%) who entered into rent-to-own contracts ended up purchasing the items, indicating that the desire to purchase these items is a motivating factor.
  • Low-income consumers may feel more comfortable purchasing the items via rent-to-own contracts rather than saving up the money as they may fear that saving a large sum of cash could disqualify them from public benefits, or they may have trouble saving the money because any money they do save gets utilized for other unexpected expenses.

Short Term Need

  • Consumers may use rent-to-own products to fulfill a short-term need or to experience the product before committing to purchase.
  • For example, consumers who must often move, like college students or military personnel, may use rent-to-own items for a time and then return them, to avoid the hassle of moving items. Some parents may use rent-to-own musical instruments for their children so they can see if their children like the instrument before purchasing.

Additional Services

  • Consumers may find the additional services offered by rent-to-own companies appealing.
  • Rent-to-own contracts generally include provisions for replacement, repair, and delivery already factored into the rent-to-own agreement.
Part
02
of three
Part
02

Rent-to-Own Benefits

Benefits to rent-to-own contracts include flexible payment plans, limited credit implications, low payments, and low up-front cost.

Flexible Payment Plans

  • Contracts for rent-to-own products are generally flexible, allowing consumers to pay off the purchase early if they are able, with no prepayment penalty.
  • If consumers cannot make a payment, they can simply return the product. Additionally, if the consumer decides they no longer want the product before they are done paying it off, they can return the product.

Limited Credit Implications

Low Payments

Low Up-Front Cost

  • Generally, the first payment is not due at the time of purchase, meaning rent-to-own contracts have a low up-front cost.
  • The only up-front cost is generally a processing fee. This means consumers can walk out of the store with their products (or have them delivered) that same day, satisfying the need for immediate access.

Research Strategy

Benefits were determined based on their mention by multiple credible experts.
Part
03
of three
Part
03

Rent-to-Own Drawbacks

The drawbacks of rent-to-own contracts include the high interest rates, the hidden additional fees, limited disclosure of the APR, and the fact that these types of agreements do not help consumers establish credit history.

High Interest Rates

  • Rent-to-own contracts generally have extremely high interest rates, anywhere from 60%-100%, which is legal since the contract is not a loan, but a lease.
  • Due to this, if payments are spread out over a longer period of time, the consumer may end up paying double or triple the price for the item.

Additional Fees

  • Rent-to-own contracts may include additional fees, like fees for delivery, early return, an insurance on the item while payments are being made.
  • Rent-to-own contracts generally include these fees in the fine-print, and they are not properly explained to consumers, leaving some consumers unaware of the fees at the time of purchase.

Limited Disclosure

  • Companies offering rent-to-own products are not generally required to disclose the annual percentage rate (APR).
  • Without the APR, which includes fees plus the stated interest rate, it is hard for customers to understand the true cost of the rental agreement, and therefore makes it hard to comparison shop.

Does Not Establish Credit

  • Since rent-to-own companies do not report to credit agencies, on-time payments on rent-to-own purchases do not help consumers establish good credit history.
  • Unfortunately, if the rent-to-own contract is broken and the owner (the company leasing the product to a consumer) takes the renter to court, then the lien could end up on a credit report, having an extremely negative effect.

Research Strategy

Drawbacks were determined based on their mention by multiple credible experts.
Sources
Sources