Hi all.
I’d like to make you aware of what Rent to Own is and why it is such a big problem in my opinion.
It can be best explained with a example.
You go to a store, They sell a TV in two different ways.
First way: Buy outright at $2,200.
Second way: Pay $60/week – price is $2,200. When you buy the TV, you’re not really buying the TV. You’re really buying the privilege to have it at a certain address until you pay it off.
Let’s look at the second way:
What is the effective APR? 142%
How much of the per week cost goes to the store? (Interest) $59.86
How much of the per week cost goes to the TV? (Principal) 14 cents
Is this a fair distribution? You decide. Hopefully this hypothetical example should answer this question for you.
A bank provides an savings account at rates of 142 percent compounded quarterly. You put 50 dollars into this account. How much will the account have at the end of 1 year without any monthly additions?
A = P(1 + i)^n
P = $50
i = 1.42 / 4 = 0.355
n = 4
A = 50(1 + 0.355)^4
A = 168.54939003125
which, when rounded up, is $168.55. The interest: $118.55.
Can the bank afford to do that for 1 thousand accounts over 10 years? Look:
$118.55 * 1,000 accounts * 10 years = $1,185,500.
If you opened a rent to own business, you could get that much money if you sold the hypothetical TV about twice every hour for 24 hours, or about once every hour for 8 hours.
Pick one: Rent your TV, or own your TV. Don’t do both for America’s sanity. Please. I beg you.
