Rent to own (RTO) is a payment plan by which you can buy brand-new merchandise -- furniture, appliances, electronics, computers -- through weekly cash installments.
According to the Association of Progressive Rental Organizations (APRO), a nonprofit group that lobbies on behalf of RTO businesses, there are some distinct advantages to making purchases using the RTO model:
- You can own new, name-brand products without a large upfront cash payment or taking out credit.
- Renters can return an item at any time. There is no obligation to make the next payment.
- People using RTO services won't face a credit check. Bankruptcies and bad credit histories don't matter.
- Renters who fail to make a payment will not have a stain on their credit history, since this is a no-credit transaction. However, the merchandise will be repossessed.
- You can enjoy lifetime reinstatement at many RTO businesses. This means that if you decide that you can't continue paying for an item right now, the money you have already spent will be credited toward that same item in the future. So if you have to return the refrigerator, you can pick it back up when your next paycheck arrives and you won't have to start back at week one.
- Renters who make on-time RTO payments can build a positive credit history. [source: APRO]
The APRO also says that the RTO payment model suits a wide range of potential customers, not just people with credit problems:
- Football fans who want to rent a widescreen plasma TV and an extra couch for the big game
- Seasonal workers or travelers who want new, high-quality merchandise to use for a few months at a time
- Parents who may not want to invest in expensive items like musical instruments or electronics that their child might not like in six months.
- People who need to temporarily replace an appliance while it's being repaired [source: APRO]
While these types of RTO customers undoubtedly exist, the main client of an RTO business is what one RTO franchise calls the "moderate-income consumer" [source: Aaron Rents]. These are people with bad or no credit, no savings and few options for purchasing expensive household merchandise.
The RTO model is different from other purchasing options like in-store credit or layaway. In-store credit is a loan financed by the store that incurs interest. RTO is not technically a loan, but a payment plan.
With layaway, a customer makes weekly cash payments toward the purchase of an item, much like RTO. The difference is that the store holds the item -- literally "lays it away" -- until the customer has paid the full amount. Layaway contracts are generally for short periods, like 30 to 60 days, and incur no interest.
The RTO model allows the customer to use the item while making weekly payments, but that comes at a cost. Even though weekly RTO payments seem reasonable -- $30 for a refrigerator or $40 for a nice computer -- they can add up fast.
While RTO businesses claim they don't charge interest (this isn't a loan, remember), there is steep interest built into the payment structure. After all, if you pay $30 a week for 91 weeks for that refrigerator, you've just bought yourself a $2,730 fridge.
Keep reading to learn why RTO purchases might make sense for short-term rentals, but not for long-term purchases.