I’ve been watching these commercials for years, and like the famous Cash Call commercials with Gary Coleman (who played Arnold Jackson from the sitcom Different Strokes), I wonder just how many people read the fine print on these agreements.
I often see commercials from companies like Rent-A-Center that advertise how you can rent-to-own a TV, dryer, couch, tables, even lamps and laptops, versus purchasing them outright. With these companies it’s possible to rent all the furniture you need to completely outfit your apartment or home. Upon completing the last rental payment, the product is yours. The purpose of such a service is to provide these desired products for individuals who do not have the savings to purchase them outright and probably do not have the credit to buy them over time, and most importantly, are unwilling to wait for either.
For years I have been watching their commercials and pausing the DVR to read the fine-print that appears for mere seconds below their ad and am always amazed that a sufficient number of people continue to use their service such that they are still in business.
For example, today I watched one such commercial to rent-to-own an LG 720p HD plasma TV (which you can see priced at Crutchfield.com for $799). When you get over your confusion as to why Hulk Hogan is pitching TV rentals, you can try to read the barely legible fine-print on the bottom of the screen. This ‘legaleze’ estimates that you will pay $24.99 per week for a maximum of 91 weeks which works out to $2,274.09. So by the time you own this TV you will have paid $1,475 over the retail price in just under two years time.
Based on a quick Google search, it seems the interest rate for these purchases range between 200% and 400%.
I have no problem with this company, or even those interest rates, assuming it lives up to the contract agreements it enters into with its customers. I expect customers to do the same, which includes understanding the contract they are signing.
First, all of the products RAC provides are not for needs, but for wants. Nobody needs a TV or a lamp or a laptop.
Second, the agreements stipulate exactly how much you will end up paying by the end of the agreement. The assumption is that you read what you are signing, it’s nobody else’s problem if you don’t (except in home mortgages, where I am currently being forced by my government to pay for bailing out people who did not, in fact, read what they were signing).
Third, there is obviously a demand for this service which means there are people who can not buy these products on their own, do not have the credit to buy them over time, and in theory, would not be able to have these products without such a service. Is it a bad idea? Absolutely…but everyone’s needs and wants and what they are willing to do to achieve them are different and it is up to each individual to decide what their priorities are.
The glaring alternative to renting this $800 TV over two years at a cost of $2,200 is to save the $24.99 per week on your own, living without a TV for the 8 months it would take to save the $800. So what this comes down to is that there are people out there in the world not willing to live without a TV for 8 months and will pay almost $1,500 extra just to avoid it. That’s a pretty steep price to pay to “have it now,” but again…not anyone else’s problem.
Like all the other bad decisions people make, we don’t need to get involved, nor does the government, nor should we be required by our government to bail people out of their bad decisions, even though most of our taxes are being spent on just such moral hazards.
One of the funniest Saturday Night Live skits that I have ever seen can be found by clicking on the image below, where Steve Martin discusses the book shown above, “Don’t Buy Stuff You Cannot Afford.” The image links to the clip on Hulu.com.
Categories: Personal Economics