Is Renting a Rip-Off?
Yesterday a visitor to the blog made an interesting comment, and I thought I would create an entire post about it in case other people had similar concerns.
Erik said:
It’s a neat concept on renting stuff… although what I’ve seen of the business model thus far involving renting of items is that they just end up cheating “poor” people.
This is a valid concern that Erik has, as there are definitely some types of rentals that just plain do not make sense.
I think what Erik is referring to though are the “Rent-to-Own” models. These are probably the most common models where people get a bad deal. This doesn’t mean though that all rent-to-own is bad. It just happens that people can lose a lot of money on it, and it generally tends to be people with less money to lose. Let me explain why.
Rent To Own Example
The rent-to-own model works like this. Let’s say you want to rent-to-own something for your house, like a new refrigerator. In fact, lets say you want to rent this refrigerator from Rent-A-Center. This is the Whirlpool ED2CHQXKQ.
Now you could buy this exact refrigerator from BestBuy here for $1,199. So now we know how much one costs. I called up Rent-A-Center to see how much they rent-to-own for. I was surprised to find that they charge over $138 a month for the same unit! This is quite expensive, but lets see how expensive this really is.
So if you rent this refrigerator for 81 weeks then you own it outright. Add all that up and you just spent almost $2,600 for a refrigerator that would have cost you $1,200 brand new. So this is very expensive, but why would this be worse for poor people? Isn’t it the same ripoff regardless of who rents it?
The Problem
The problem with a rent-to-own situation is this. If you rent the item for 12 months and then all of a sudden can’t keep up the payments, then you lose the item. But you also lose all the money you spent renting the item. This would be fine if you paid a normal rental amount, but with rent-to-own you are normally paying a much higher monthly rate. So you just lost a lot of money!
And don’t think these companies are shy in taking away the item. Miss a payment or two and you better believe they will be making a house call to reclaim their goods. So yes, this is worse for people who have less money, because they are more likely to rent it for a while and then lose all the money. When you consider that you can easily rent a refrigerator for $45 a month or less from a normal rental company, this can end up creating big losses.
Breakdown of Losses
12 Months Rent-A-Center = $1,656
12 Months Normal at $45 = $540
Money lost due to Rent-to-Own system = $1,116… Ouch!
Is This Evil?
So these systems exist. For some people who have really bad credit, this may be the only way to get a new refrigerator. So we aren’t saying that the system should be abolished, but it is definitely dangerous. Especially if you have bad credit, meaning you have a history of not making your payments on time.
Is All Renting Bad?
So how is that different from iRent2u.com? Our goal here is to make renting affordable for everyone. We want to make rentals as cheap as possible. You won’t find any confusing and tricky schemes here, just honest and simple rental plans for people who need things on a limited basis.
We fully recognize that some items are not made for renting. If you need a fridge for a long time, then you should probably buy it. But if you are living in an apartment for only three months during a summer internship, then it may make a lot of sense to rent it and save 5 or 6 hundred dollars.
To continue the same example, if you rented a refrigerator for $46 a month, over 3 months you would have paid less than $150. That is big savings over buying it brand new for $1,000. Then afterwards you don’t have to worry about selling it or moving it, because the company will take it back. Everyone wins!
Renting Can Be Great For Everyone!
So renting is not bad for “poor” people. Renting is a tool that is great in some circumstances, and can be a poor choice in others. The key is to pay attention to your costs and figure out when it makes sense to buy and when it is better to rent. Often times when you look at a real comparison you will find you are buying things that you should rent, and other times you are renting things you should buy.
A quick example: I recently bought a new tuxedo for $200. I could have rented it for $110, but the next time I needed it I would have to pay again and would have wasted money. Now I have a tuxedo for the rest of my life, or until I grow out of it. 
But if the rental had been around $50 I would have just rented it, because I don’t know if there will be four occasions in the next 5 years where I will need a tux.
Renting is great, but you have to do the math. Lucky for you we will build easy tools to help you do the math every time!
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