No credit? No problem!
Sears and K-Mart are now part of the infamous rent-to-own crowd. Who wouldn’t want to pay $415 for a t.v. that would normally cost $300? Just in time for the holidays too? It’s a win-win situation for those people without credit or cash. Or is it?
“The rent-to-own industry promises consumers the American dream of ownership,” said Ed Mierzwinski, consumer program director at U.S. Public Interest Research Group, a Boston-based consumer group. “But its contracts provide for very high-cost payments, and it is difficult to complete the contract.”
Contracts that call for bi-weekly payments, similar to places like Aarons Rents and Rent-A-Center, truly aren’t benefiting anyone but the company. Unfortunately, those consumers who feel the need to make top of the line purchases, may not realize they’re being taken for a ride.
In an example provided by Sears, customers could buy a $400 item or group of items by making 10 biweekly payments over five months of $33, then decide whether to keep making payments, return the merchandise, or spend $220 to buy out the lease for a final cost of $553. That would be the equivalent of a 114 percent annual rate, according to Mierzwinski.
Mierzwinski said he found the Sears lease-to-own website, operated with its program partner, Whynot Leasing LLC, “opaque,” with the true cost of products not easily discernible. That’s typical of rent-to-own programs, he said, which appeal to cash-strapped consumers because they focus on the individual payment amounts, not total cost.
“It deceives consumers about the true price,” Mierzwinski said. “Consumers are just going to see $25. The trick of rent-to-own is to show you the weekly payment.”
Jai Holtz, Sears Holdings’ vice president of financial services, says the Sears rent-to-own program has grabbed new customers who don’t qualify for credit, allowing them to buy televisions and other big-ticket items.
“I’m not here to convince you lease-to-own is not more expensive than a credit program,” Holtz said. “Our total cost of ownership, for a customer who otherwise cannot get credit, is much lower than the others in the industry offering these types of products. This is really coming from consumer demand.”
Consumer demand at 114% APR, yeah, it’s a win win for everyone.