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A Reconsideration of Rent‐to‐Own
Author(s) -
ANDERSON MICHAEL H.,
JACKSON RAYMOND
Publication year - 2001
Publication title -
journal of consumer affairs
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.582
H-Index - 62
eISSN - 1745-6606
pISSN - 0022-0078
DOI - 10.1111/j.1745-6606.2001.tb00115.x
Subject(s) - renting , appeal , yield (engineering) , interest rate , economics , value (mathematics) , term (time) , microeconomics , business , actuarial science , monetary economics , law , mathematics , political science , statistics , materials science , physics , quantum mechanics , metallurgy
Rent‐to‐own agreements (RTO) are traditionally seen as disguised installment contracts imposed on uninformed consumers at usurious interest rates. After the flaws and omissions in these interest rate calculations are addressed, the implied annual percentage rates (APRs) remain extraordinarily high. It is shown that alternatives to RTO, such as layaway and long‐term rental, yield comparable APRs. The appeal of rent‐to‐own is then attributed to its structure that includes an initial pure rental phase of high value to persons in volatile financial and/or personal situations followed by an installment phase. Should these situations be resolved, the consumer exercises an imbedded option to acquire a perhaps otherwise unobtainable installment agreement at a competitive interest rate.