The $5.3 billion lease-purchase
industry is relatively new to the American economy. The unique "rent-to-own" transaction
sprang up in the 1960s in response to a growing consumer need for
acquiring the use of household products without incurring debt or
jeopardizing the family's credit. The rental-purchase customer comes
from all walks of life who desire consumer durable goods in their
homes without the long-term financial obligations associated with
credit sales.
What
distinguishes rental-purchase from a retail credit sale is the
term "rent." There is no interest charged to consumers,
no credit checks involved and customers can return the merchandise
at any time. This no-obligation, no-debt feature is the cornerstone
of rental-purchase. It's easy, it's safe, and it's hassle-free.
Free replacement, repair and delivery are included.
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This $5.3-billion-a-year industry is composed of dealers who
rent furniture, electronics, major appliances, computers, jewelry
and other products with an option to buy.
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Rent-to-own, or RTO, has been an identifiable U.S. industry
for more than 30 years.
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There are approximately 8,000 stores in all 50 states.
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RTO serves 3 million customers (households) a year.
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Rent-to-own stores offer no-obligation rentals of durable merchandise,
including furniture, major appliances (refrigerators, washers, dryers)
and electronic goods; a typical agreement includes free delivery
and free repairs or replacement of defective items -- satisfaction
guaranteed.
transaction profile
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Rentals are normally for either one week or one month at a
time.
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At
the end of the week or month, the customer can either terminate
the agreement without any cost or obligation, or renew the contract
by making another advance rental payment.
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If the contract is renewed a prescribed number of times-usually
a total period of 18 months-and the customer meets the terms of the
rental agreement, the store conveys ownership of the item to the
customer.
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At the onset of the agreement, the customer is told very clearly
what that prescribed number of renewals is, and the total dollar
amount in rental payments he or she will have made by the time ownership
is an option.
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The overwhelming majority of customers do not pursue the ownership
option; approximately 75 percent return the rented item within the
first four months; fewer than 25 percent rent long enough to own
the item.
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Because renters pay as they go, and no credit is extended,
credit reports on customers are not obtained and no debt is incurred.
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Previously rented items are refurbished and re-rented at reduced
rates.
