The store advertises products with a “cash price,” the price that a
customer could just pay that day and own the product. This price is
typically much higher than the same good at a department store, as much
as 1.5 or even 2 times higher. Nonetheless, rent-to-own customers don’t
have the cash to buy the product outright; the cash price is better
understood as “principal.” Rent-to-own customers make installment
payments, either weekly or monthly. By the time the customer
successfully makes all the payments, they often have paid double the
cash price. If a price doubles across a year’s worth of payments, it
works out to an effective interest rate of 152 percent.
In
addition to inflated principal and illegal interest, rent-to-own stores
charge a large number of fees. The legislation they most recently tried
to pass in New Jersey would have authorized these fees: application
fees, processing fees, insurance fees, late payment fees, default fees,
pick up fees, reinstatement fees and the open-ended “other charges the
customer may incur.”
While rent-to-own customers can use the
goods from day one, the money they pay doesn’t buy them anything until
after they make the last payment; if they cannot complete the payment
schedule, the goods are repossessed. If a customer is purchasing
multiple goods from rent-to-own, they don’t own any of the goods until
all the goods are purchased. When RTO repossesses goods, they then
resell them to other customers.
That means these exorbitantly priced goods are often used, and they often break.