Rent-to-own agreements: Customer characteristics and contract outcomes
The rent-to-own (RTO) industry, by offering immediate access to household goods for a small periodic fee with no credit check or down payment, has strong appeal to low income and financially distressed consumers. An important policy question is whether an RTO agreement is used as a rental/lease with build-in purchase option or as something more akin to an installment loan. Given the embedded options to return the item or to purchase it early, the actual rent paid by RTO customers is substantially lower than the oft-reported total rent which assumes that agreements go to term. We employ a log-normal censored regression model to analyze the influence of customer demographics as well as the transactional details of the contract on the rent paid by consumers using rent-to-own. Our main conclusions are (1) it is the "working poor" that are likely to pay more rent, (2) there appears to be a clientele effect with customers paying more rent under bi-weekly and monthly, as opposed to weekly, payment schedules, and (3) customers who exhibit delinquency in making contractual payments generally end up paying more rent. Further, our data allows some observations on annual percentage rates by illustrating the business risk present for RTO stores as well as the cross-subsidization of consumers.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Sanjiv Jaggia, 1997. "Alternative Forms of the Score Test for Heterogeneity in a Censored Exponential Model," The Review of Economics and Statistics, MIT Press, vol. 79(2), pages 340-343, May.
- Signe-Mary McKernan & James M. Lacko & Manoj Hastak, 2003. "Empirical Evidence on the Determinants of Rent-to-Own Use and Purchase Behavior," Economic Development Quarterly, W.E. Upjohn Institute for Employment Research, vol. 17(1), pages 33-52, February.
- Melenberg, B. & van Soest, A.H.O., 1991.
"Parametric and semi-parametric modelling of vacation expenditures,"
1991-44, Tilburg University, Center for Economic Research.
- Melenberg, Bertrand & van Soest, Arthur, 1996. "Parametric and Semi-parametric Modelling of Vacation Expenditures," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(1), pages 59-76, Jan.-Feb..
- Melenberg, B. & Van Soest, A., 1991. "Parametric and Semi-parametric Modelling of Vocation Expenditures," Papers 9144, Tilburg - Center for Economic Research.
- Melenberg, B. & van Soest, A.H.O., 1996. "Parametric and semi-parametric modelling of vacation expenditures," Other publications TiSEM 14de3e83-71c1-4e9a-aa5e-3, Tilburg University, School of Economics and Management.
- Richard Thaler, 1985.
"Mental Accounting and Consumer Choice,"
INFORMS, vol. 4(3), pages 199-214.
- Chesher, Andrew & Irish, Margaret, 1987. "Residual analysis in the grouped and censored normal linear model," Journal of Econometrics, Elsevier, vol. 34(1-2), pages 33-61.
- Zikmund-Fisher, Brian J. & Parker, Andrew M., 1999. "Demand for rent-to-own contracts: a behavioral economic explanation," Journal of Economic Behavior & Organization, Elsevier, vol. 38(2), pages 199-216, February.
- Drazen Prelec & George Loewenstein, 1998. "The Red and the Black: Mental Accounting of Savings and Debt," Marketing Science, INFORMS, vol. 17(1), pages 4-28.
- Pagan, Adrian & Vella, Frank, 1989. "Diagnostic Tests for Models Based on Individual Data: A Survey," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 4(S), pages S29-59, Supplemen.
When requesting a correction, please mention this item's handle: RePEc:eee:jebusi:v:61:y:2009:i:1:p:51-69. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shamier, Wendy)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.