For a time, my father’s bank dabbled a market that is quite similar to Rent-a-Center, and he explained to me how these operations work.
A buyer comes in and wants an item that they can’t afford to pay for up front. They sign a lease agreement to cover the cost of the item (say, a $1200 TV), with no money down.
The lease agreement breaks down like this:
$29.99 a week for 104 weeks
Total of All Payments: $3,118.96
Their “Rent-to-own Charge” is $1,688.27.
So, they’ve effectively paid for the cost of the retail value of the thing after 1 year (and the cost to the company, has been covered by the 6th month), so in this particular instance, if the customer defaults on their lease at any time between the 6th and 12th month, they aren’t losing any money on the deal – but they still get to go after them with immediately, raised interest rates, late fees AND they can seize the asset. Specialized debt collection agencies exist to recover defaulted assets. For my father’s bank, they retrieved defaulted mobile homes (which were apparently hard to track down, because, well, mobile.) But find them they did, because if you couldn’t pay your loan payment, you generally couldn’t afford the gas to move a mobile home very far.
That said, the majority of people don’t default, but are instead utilizing these systems to build their credit. But when you do, that’s when the “repo man cometh.”
Originally Posted: https://www.quora.com/How-do-rent-to-own-companies-like-Aarons-and-Rent-a-Center-get-their-merchandise-back-if-a-customer-stops-making-payments
Originally Posted On: 2015-12-27