Sunday, April 24, 2011

Bad idea

A friend mentioned this one to me: Rent to own stores. This is probably one of the worst ideas possible, financially (unless you own the store.) What made her think of this one was a sign advertising TVs for $99 a month FOR 36 MONTHS. That's $3564. FOR A TELEVISION! I could comfortably furnish a 1 bedroom apartment for that much money.

A television is NOT a necessity like food and shelter, and expensive TVs are definitely toys. Toys should be bought in cash, with money left after you provide for real bills and necessities AND fund your emergency fund. If you can't afford to pay for that huge home theater in cash, you can't really afford it no matter what your buddy has in HIS living room. You can get a perfectly good new flat screen HD TV for $200 or less. If you can't afford $200 in cash, why are you even THINKING about committing yourself to $99 a month for a TV when you don't even have the money for a used car payment? Go to Goodwill or a similar shop and buy a cheap working second hand TV for less than one month's payment.

If TVs are your passion and you really, really would love and use that elaborate TV, save up for it sensibly. Go out and buy that cheap TV from Goodwill and save that $99 a month. Within 4 or 5 months, you'd be able to buy a 30 or 40" flatscreen TV in cash. If that isn't enough TV, you can probably save up enough to buy a TV very much like the one that the rental place was selling for over $3500 in about 15 to 18 months, probably for less than $1800. That's because the price tag on the rent-to-own items is generally MUCH higher than retail stores, the models they sell are usually older models that are close to going out of production (remember, that means repairs will be harder to come by) and the actual interest on the purchases is very high. Also keep in mind that these sort of things tend to be impulse purchases. By the time you have the money saved,  you may find somewhere better to put your money.

And rent to own furniture. I should go by the local store and price these, but I don't have the free time right now, and the on-line store won't give me any information on pricing until I actually start filling in personal information to BUY the item (always a bad sign). But from things I've seen in the past, you're probably going to pay more than twice what the furniture is really worth. Even if furniture is a necessity, if you can't afford to just buy it, you probably don't really need it.

Instead of dropping almost $2400 over 2 years for a sofa, loveseat and coffee table, try used furniture stores and for sale ads (Craigslist, used with CAUTION for safety, can be very useful) and yard sales. You can probably get similar items within a couple of months for less than $300. You can probably get high quality items (which the rental stuff rarely is) for less than $1000.

A bed is the only normal furniture item that is essential enough that a case can be made for going into debt to buy. Even then, the frame can almost always be bought cheaply second hand. You'll probably want to buy a mattress new, though, and get a decent quality one that will last. But do NOT buy it from the rental place. If you can't buy it in cash, and you don't qualify for normal credit, sleep on an air mattress for 3 or 4 months while you save up to buy that mattress before you blow money at the rental place. And shop before you buy. My daughter, whose partner has back problems, shopped around for a very particular type of mattress, and found a reputable place where she could get the mattress she wanted for 40% of the usual retail price, less than half what they'd have paid if they went down to the local bed store.

There are a very few cases when rental furniture (note I said rental, not rent-to-own) may make sense. One: medical furniture, like a hospital bed, that you need temporarily or absolutely HAVE to have now and can't get any other way. Two: an extra bed for a house guest (for instance, your elderly MIL is staying with you for a month or two while she recovers from surgery but isn't moving in permanently).  Three: you're moving somewhere temporarily, and you can't take your own furniture with you (and if you're staying more than 3 or 4 months, buying a few pieces of second-hand furniture then reselling may still be a smarter idea). Four: you're moving and your house hasn't sold yet, and you want a few pieces in the house so it doesn't look bare when the realtor shows it or when someone looks in the windows. These last two cases I think you should be really cautious about, especially the last case. If you do chose to rent for a short period, study the contract CLOSELY. Make sure you aren't committing yourself to a long term, aren't paying a high delivery and pick up fee or a cancellation fee, and you can end the rental with no more than 30 days notice.


Ami said...

The first thing we ever charged was a television set. We had the cash to buy one but were trying to establish credit. I was paranoid about paying off our debt on that one, sent them a check about two days after we bought it.

Now I wish we'd never gotten credit.

Dawnfire said...

Establishing credit can be one of those no-win situations. Some people who choose to strictly use cash, but own their home and cars outright and have substantial savings are considered credit risks, go figure. The rules for credit ratings are actually set up to punish responsible behavior, to an extent. This wouldn't necessarily be a big deal except companies are trying to use credit ratings to discriminate on rates. There was a case in Texas where a car insurance company was using credit rating to set rates and was charging a family like this a much higher rate, when common sense says they're a better risk, not worse.