Question:
Why do people lease furniture if they plan to keep it for a long time?
Answer:
There are two very different types of Furniture Rental — Rent to Own, and Rent-to-Rent.
Rent-to-Own is far larger in terms of the number of locations. There are nearly 10,000 RTO locations throughout the U.S.
Rent to Rent is primarily used for businesses furnishing temporary homes for employees on extended out-of-town assignments
Rent-to-Own targets consumers who do not have good credit or who have no credit history and little cash.
It has one primary benefit. It allows consumers to own furniture that is newer and more expensive than they could otherwise afford or finance. No cash down or credit check is required.
The dis-advantage is extremely high interest rates than can run as high as 300%. Rent-to-own franchises try to price their furniture so that they can make back the cost of the furniture in 6-15 months.
After that everything is pure profit, as is anything they can get from selling off the used furniture if it is returned or repossessed.
Rent to Own companies generally buy inexpensive low quality furniture.
It is then marked up to an extremely high retail price and leased for “low” monthly payments.
The “rental” term typically lasts 12 – 24 months. The actual cost of the furniture will be recovered within just a few months.
The terminology “rental” is in quotes because these payments are not really rent. They are lease payments.
The bulk of the lease payments are finance charges. The interest rates are extremely high, far above those charged by credit cards.
An example taken from another article shows comparable pricing in a Rent-to-Own store on a 40″ LCD TV.
Buy it Now Price: $1,199.99
Rent-to-Own Price: $1,919.76 (monthly payments)
Interest Rate: 60%
Lowest Price Found for Same Product (new): $499.00
If the numbers shown above were for furniture, the total cost to the rental company (from the manufacturer) would probably be $250 – $300.
That cost would be recovered after only a very few payments.
Most furniture returns in RTO are due to unpaid monthly charges rather than damage. Returned furniture has very little resale value.
Liquidation firms pay a fraction of the original cost for this used returned rental furniture is not supposed to be re-sold to RTO customers.
Rent to rent furniture companies do operate clearance centers.
These clearance centers sell off used furniture that is no longer in condition to be rented, but is still usable.
A substantial percentage of the furniture’s cost may be recovered, even after very heavy discounts.
Rent to Own furniture stores should be avoided for most people.
For people who do not have cash on hand and do not have access to credit, however, they may be the only option.
Since no background check or credit report is required, a large percentage of Rent-to-Own customers are high credit risks.
This makes the Rent-to-Own companies particularly vulnerable to the condition of the economy.
Economic downturns can severely impact the profitability of Rent to Own companies.
High unemployment, recessions, inflation and high interest rates negatively affect RTO companies.
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