The rent-to-own business involves dealers that rent homes, furniture, cars, appliances, electronics, and jewelry to consumers. This arrangement provides the customer with immediate access to these assets for relatively low weekly or monthly payments.
In this article, we're going to cover the lease-to-own, rent-to-own, or RTO, industry. Since this business sector has such a wide reach, from homes to electronics, we will not be going into the specifics of any one transaction. Instead, we will provide generalized information on the RTO process.
An RTO arrangement is one in which a consumer enters into a lease agreement to make a weekly or monthly payment in exchange for immediate access to the asset. These payments are self-renewing in that as long as the consumer continues to make payments, they have access to the asset.
A rent-to-own lease also has a purchase provision that allows the consumer to take permanent ownership of the asset after a pre-determined number of payments have been made to the lender or retailer. Alternatively, the consumer may be able to purchase the asset earlier through the prepayment of a portion of the remaining lease payments.
The benefits of the lease-to-own business model flow to both the buyer as well as the seller of the goods. Whenever entering into such an agreement, it's important that all the terms and conditions of the contract are understood by both parties.
To avoid any problems, even the smallest detail needs to be spelled out. Although it may be commonplace in the industry that buyers are not responsible for maintenance or repairs, make sure these questions are asked, and answered, before signing any agreement. Some of the more common benefits, and problems, with rent-to-own arrangements are listed below:
In early 1999, the Federal Trade Commission conducted a survey involving 12,000 randomly selected households and over 500 rent-to-own customers. Participants in this survey were asked about their experiences with merchants.
Highlights of that study include:
The biggest area of concern with a rent-to-own contract is the price paid by the consumer, which can sometimes be two to three times the retail price of the item. Nearly all states have laws that regulate the industry in a manner that is consistent with the way standard leases are treated. There are no specific protections offered to consumers under federal law.
Before entering into any agreement, the buyer should be familiar with the terms and conditions of the contract. Specifically, the buyer needs to understand his or her obligation with respect to payments, total cost, fees, repairs, and penalties.
A simple rent-to-own checklist of understanding for consumers appears below:
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