Renting a Good Life: A National Examination of Determinants of Rent-to-Own Store Use

Background. The rent-to-own (RTO) transactions provide immediate access to goods (e.g., furniture, appliances, home electronics) for a relatively low weekly or monthly payment without credit checks or a down payment but with high charges interests as much as 200 percent. Millions of American households, especially those in the bottom half of the income distribution and receive public assistance use RTO to meet their short-term needs. Literature on RTO use remains scarce. Little is known about the profile of RTO users and the financial well-being implications of RTO use. To address this knowledge gap, this study examines predictors of RTO use.

Method. We drew data from the 2018 National Financial Capability Study (NFCS) state-by-state survey, which is a large national survey of 27,091 U.S. adults and households. The dependent variable is RTO use, measured by one question asking how many times that RTO store was used in the past 5 years. One dichotomous variable was computed to indicate whether participants used RTO stores in the past five years. One continuous variable was computed to indicate the number of times that RTO stores were used in the past years. Independent variables include three demographic variables, six socioeconomic variables, four financial circumstance variables. In addition to descriptive statistics, binary logistic regression analyses were used to examine the combination of characteristics that best predict use of RTO products. OLS regression was employed to estimate factors that predict the number of RTO uses.

Results. Over 10% of the sample used RTO store at least once, almost a third (27.31%) of RTO users received public assistance, and similar portion (26.28%) o had income drop in the past year. Models showed a similar set of predictors associated with use of RTO products and numbers of RTO products. Those who were female, younger, had a bank account were less likely to use RTO products at and less likely to use RTO products multiple times. In contrast, individuals who were Black, Asian, had less than high school education, dependent children, part-time employees, unemployed, public assistance recipients, and experienced income volatility were more likely to use RTO products multiple times. Among the predictors, employment status, public assistance, and income volatility were shown strong association with RTO use.

Discussion. The current study adds to the limited knowledge about RTO users. For example, both public assistance and income volatility were found to have a substantial positive impact on both RTO use and frequency of RTO use. In addition, having a poor credit record was positively associated with RTO use. The services and products offered at RTO stores may be especially attractive to individuals who are on public assistance struggling to make ends meet. RTO agreements typically can be terminated by users at any time without further financial liability, a feature that may be well suited to individuals who are in transient or unsettled living situations, or who have unstable incomes. Policy and practice implications include advocating for interest rates cap for RTO products as well as improving credit access.