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What Is Rent-to-Own?

The $6.7-billion rent-to-own industry emerged in the 1960’s in response to a growing consumer need for acquiring the use of household products without incurring debt or jeopardizing the family’s credit. Rent-to-own customers come from all walks of life, desiring consumer durable goods in their homes without the long-term financial obligations associated with credit sales. What distinguishes rent-to-own from a retail credit sale is the term “rent.” There is no interest charged to consumers, no credit checks involved and customers can return the merchandise at any time. This no-obligation, no-debt feature is the cornerstone of rental-purchase. It’s easy, it’s safe and it’s hassle-free as free replacement, repair and delivery are included.

History of the Rent-to-Own Industry

The rent-to-own industry traces its origins to England, current and former members of the British Commonwealth, and continental European countries. To this day, these transactions are common in the United Kingdom. Under the “hire purchase” model, title to goods passes to the hiring party at the conclusion of the term of hire. Under the “hire-hire” model, or the “straight hire” method, consumers “hire” (i.e., rent) merchandise for a more limited period with no right to receive ownership upon completion of a stated term of hire. In the United Kingdom, “hire-purchase” transactions generally involve durables such as automobiles, furniture and business equipment, while “hire-hire” arrangements typically relate to televisions, stereos and other electronics equipment. The popularity of straight hire transactions for the latter category of items reflects consumer preference for an opportunity to “trade up” freely as new generations of products are introduced.

Both categories of transactions now occur in the United States, where they are referred to as “rent-to-own” and “rent-to-rent” transactions. In the typical rent-to-own transaction, the consumer enters into a rental agreement that provides for weekly (or in some cases monthly) rental payments. The agreement provides that, upon timely payment of the rental fee for a specified period, ownership of the rental merchandise will transfer to the customer.

One of the distinguishing characteristics of a rent-to-own transaction is that, unlike a traditional installment sale, the agreement (and hence the payment obligation) renews at weekly (or monthly) intervals and is freely terminable by the customer. The customer may choose at any time either to complete the schedule of rental payments and acquire ownership of the merchandise or make rental payments only for a more limited period and return the merchandise to the vendor.

The rental-purchase industry in the United States was founded in the 1960’s to offer consumers an alternative to traditional retail installment sales. The rent-to-own industry emerged as an alternative market for such consumers, and also provided a service to other categories of customers (e.g., college students or other transient residents) who had only temporary needs for the rented merchandise.

The U.S. rent-to-own industry has grown rapidly from its formation in the late 1960s and early 1970s. There are now 8,300 stores in all 50 states.

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